QUESTION 7

If the value of a Treasury bond was lower than the value of the sum of its parts (STRIPPED cash flows), then:

A. None of the above statements is correct, as it can never be possible that the Treasury bond value is lower than the value of the sum of its parts (STRIPPED cash flows)

B. An investor could profit by buying the bond and creating STRIPS

C. an investor could profit by buying the stripped cash flows reconstituting the bond and selling the bond in the market

D. Arbitrage would probably not occur as the FED would adjust interest rates

QUESTION 8

Which of the following statements about CDO tranches is correct?

A. The senior tranche is the riskiest and it is normally retained by the CDO structures

B. The equity tranche generally has the largest percentage of notional principal

C. Different tranches provide investors with securities with varying degrees of default risk

D. Each tranche is given a different level of seniority in terms of claims written on different underlying pools of securities