a. If a $1000-principal mortgage-backed security (MBS) has an AAA-tranche principal of 80%, and AA, A, BBB and equity tranches of 5% each, give the

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a. If a $1000-principal mortgage-backed security (MBS) has an AAA-tranche principal of 80%, and AA, A, BBB and equity tranches of 5% each, give the cashflows the owners of each tranche would receive if: (i) 98% of the income to the MBS is received: (ii) 86% of the income to the MBS is received. (10 marks) b. If the BBB tranche is repackaged into a Credit Default Obligation (CDO), and the super-senior tranche of the CDO is 80% of the principal of the CDO, what % must the MBS income fall to for the super-senior tranche to be worth nothing?

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a. If a $1000-principal mortgage-backed security (MBS) has an AAA-tranche principal of 80%, and AA, A, BBB and equity tranches of 5% each, give the

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Oct 17, 2019

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