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 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