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Please show all work. Please show all work. Please show all work. The underlying pool. The underlying asset pool contains three identical assets. Each underlying

Please show all work.

Please show all work.

Please show all work.

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The underlying pool. The underlying asset pool contains three identical assets. Each underlying asset makes a one-time payment of either $100 with probability 0.5 or $0 with probability 0.5 The asset payoffs are uncorrelated. Structured securities: Create three new bonds (or "tranches" ) that are prioritized claims on the cash flow from the asset pool. . The first bond - the "senior" CDO - pays $100 as long as at least one of the underlying assets pays-off. . The second bond - the "mezzanine" CDO - pays $100 as long as at least two of the underlying assets pays-off. . The third bond - the "junior" CDO - pays $100 only if all three of the underlying assets pays-off. If none of the underlying assets pays off, then none of the CDOs do either. Answer the questions beginning on the following page. (a) (3 points) Create a table that shows all of the possible outcomes in the underlying asset pool and the resulting payoffs for the CDOs. Your table should have the following headings: "Asset 1", "Asset 2", "Asset 3", "Senior CDO", "Mezzanine CDO", "Junior CDO". The header and first row of your table might look like this: Asset 1 Asset 2 Asset 3 Senior CDO |Mezzanine CDO Junior CDO $100 $100 $100 $100 $100 $100 (b) (2 points) What is the expected value of the payment from just one of the underlying assets? (Hint: Compute the average of the possible payoffs from the asset.) (c) (2 points) What is the expected payoff from the "senior" CDO? (Hint: Compute the average of the possible payoffs from the asset.) (d) (2 points) What is the expected payoff from the "junior" CDO?(a) A complete table of outcomes: Asset 1 Asset 2 Asset 3 Senior CDO Mezzanine CDO Junior CDO $100 $100 $100 $100 $100 $100 $100 $100 $0 $100 $100 $100 $0 $100 $100 $100 $0 $100 $0 $0 $100 $0 $0 $100 $100 $100 $100 $0 $100 $0 $100 $0 $0 $0 $0 $100 $100 $0 $0 $0 $0 $0 $0 $0 $0 (b) $50 (c) $87.50 (d) $12.50

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