QUESTION: TRANCHES Assume that $100 million face value of MBS were used to create the following tranches issued by Quick Money" SPV: Amount in million Bond Rating Aa1 Aa2 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 $ 30 $ 20 $ 10 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 $ 5 Allocation in % Risk weights for CAR (APRA APS 120) 20% 20% 20% 20% 50% 50% 50% 100% 100% 100% 350% Assets Cash Liabilities and equity $10 Demand deposits $90 $15 Equity $10 $5 $70 Quick Money Aaa tranche Quick Money Ba1 tranche Loans (risk weight 100%) c) Assume Big Bank would have invested $20 directly in subprime mortgage instead of the tranches. Explain if this would have been better or worse for Big Bank