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A CDO invests in two $ 1 0 0 0 zero - coupon bonds. The CDO has two tranches, the Senior tranche gets paid $
A CDO invests in two $ zerocoupon bonds. The CDO has two tranches, the Senior tranche gets paid $ before the Junior Tranche gets anything. If a bond defaults, it is estimated that the payoff will be $ It is estimated that the default probabilities are as follows.
tableBond No Default,Default,TotalBond No Default,
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