Question 2 Suppose that the principals assigned to the senior, mezzanine, and equity tranches for the ABS, the ABS CDO 1 and the ABS CDO 2 are as in figure 1. Figure 1 ABS CDO 1 Senior tranche (40%) AAA Mezzanine tranche (55%) BBB ABS Equity tranche (5%) Subprime mortgages Senior tranches (70%) ABS CDO 2 Senior tranche (65%) Mezzanine tranches (25%) AAA BBB Mezzanine tranche (30%) BBB Equity tranches (5%) Not rated Equity tranche (5%) a) What are the effects of 7.5%, 10%, 15%, 20% and 25% losses on subprime portfolios on the losses of all ABS, ABS CDO 1 and ABS CDO 2 tranches in figure 1? Make sure your calculations are clear and explain your answers. Losses on Losses on Subprime Portfolios Mezzanine Tranche Losses on Senior Losses on Losses on Equity Mezzanine Tranche of Tranche of ABS ABS CDO CDO Losses on Senior Tranche of ABS CDO Losses on Losses on Losses on Mezzanine Senior Equity Tranche Tranche of ABS Tranche of of ABS CDO 2 CDO 2 ABS CDO 2 Tranche of ABS of ABS 7.5% 10% 15% 20% 25% Question 2 Suppose that the principals assigned to the senior, mezzanine, and equity tranches for the ABS, the ABS CDO 1 and the ABS CDO 2 are as in figure 1. Figure 1 ABS CDO 1 Senior tranche (40%) AAA Mezzanine tranche (55%) BBB ABS Equity tranche (5%) Subprime mortgages Senior tranches (70%) ABS CDO 2 Senior tranche (65%) Mezzanine tranches (25%) AAA BBB Mezzanine tranche (30%) BBB Equity tranches (5%) Not rated Equity tranche (5%) a) What are the effects of 7.5%, 10%, 15%, 20% and 25% losses on subprime portfolios on the losses of all ABS, ABS CDO 1 and ABS CDO 2 tranches in figure 1? Make sure your calculations are clear and explain your answers. Losses on Losses on Subprime Portfolios Mezzanine Tranche Losses on Senior Losses on Losses on Equity Mezzanine Tranche of Tranche of ABS ABS CDO CDO Losses on Senior Tranche of ABS CDO Losses on Losses on Losses on Mezzanine Senior Equity Tranche Tranche of ABS Tranche of of ABS CDO 2 CDO 2 ABS CDO 2 Tranche of ABS of ABS 7.5% 10% 15% 20% 25%