Question
An asset-back security consists of the following tranches: ABS tranche Credit rating % of principal Senior AAA 60% Mezzanine BBB 20% Equity Unrated 20% The
An asset-back security consists of the following tranches:
ABS tranche | Credit rating | % of principal |
Senior | AAA | 60% |
Mezzanine | BBB | 20% |
Equity | Unrated | 20% |
The mezzanine tranche was structured into its own ABS CDO with the following tranches:
ABS CDO tranche | Credit rating | % of principal |
Senior | AAA | 60% |
Mezzanine | BBB | 15% |
Equity | Unrated | 25% |
1. What is the estimated percentage loss on the ABS CDO equity tranche if the underlying assets lose 24.5% of their value?
2. What is the estimated percentage loss on the ABS CDO mezzanine tranche if the underlying assets lose 26% of their value?
3. What is the estimated percentage loss on the ABS CDO senior tranche if the underlying assets lose 30% of their value?
4. What is the estimated percentage loss on the ABS senior tranche if the underlying assets lose 30% of their value?
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