QUESTION: Suppose that the principal assigned to the senior, mezzanine, and equity tranches for the ABSs and ABS CDO in Figure 6.4 is 60%, 30%, and 10% instead of 75%, 20% and 5%. How are the results in Table 6.1 affected?

(Figure 6.4 and Table 6.1 is attached)

Losses to subprime portfolio	Losses to Mezz tranche of ABS	Losses to equity tranche of ABS CDO	Losses to Mezz tranche of ABS CDO	Losses to senior tranche of ABS CDO
10%
15%
20%
25%

Subprime mortgages ABSs Senior tranches (75%) AAA Mezzanine tranches (20%) ABS CDO Senior tranche (75%) AAA BBB Mezzanine tranche (20%) BBB Equity tranches (5%) Not rated Equity tranche (5%) FIGURE 6.4 Creation of ABSs and an ABS CDO from Subprime Mortgages (simplified) TABLE 6.1 Losses to AAA-Rated Tranches of ABS CDO Losses to Losses to Losses to Losses to Subprime Mezzanine Equity Tranche Mezzanine Tranche Portfolios Tranche of ABS of ABS CDO of ABS CDO 10% 25% 100% 100% 15% 50% 100% 100% 20% 75% 100% 100% 25% 100% 100% 100% Losses to Senior Tranche of ABS CDO 0% 33% 67% 100%