Assume that in the first round of securitisation, we pool 1,000 identical 1,000-loans and divide them into three tranches: 850,000 in the senior tranche, 100,000 in the mezzanine tranche, and 50,000 in the equity tranche. Assume we perform this with 100 distinct loan portfolios, and we pool the 100 resulting mezzanine tranches (totaling 10,000,000) and re-securitize them. We establish a CDO with a 7,000,000 senior tranche, a 3,000,000 mezzanine tranche, and a 1,000,000 equity tranche. Which is the highest default rate of the underlying assets that you can absorb before incurring losses if you purchase the CDO mezzanine tranche (assuming defaults are uniformly distributed across loan portfolios)? a. 5.5 percent; b. 6%; c. 6.5 percent; and d. 7%