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Fundamentals of Futures and Options Markets 9th Edition Hull Test Bank Download
Fundamentals of Futures and Options Markets 9th Edition Hull Test Bank Download
4. Suppose that ABSs are created from portfolios of subprime mortgages with the following
allocation of the principal to tranches: senior 80%, mezzanine 10%, and equity 10%. (The
portfolios of subprime mortgages have the same default rates.) An ABS CDO is then
created from the mezzanine tranches with the same allocation of principal. Losses on the
mortgage portfolio prove to be 16%. What, as a percent of tranche principal, are losses
on the mezzanine tranche of the ABS
A. 50%
B. 60%
C. 80%
D. 100%
5. Suppose that ABSs are created from portfolios of subprime mortgages with the following
allocation of the principal to tranches: senior 80%, mezzanine 10%, and equity 10%. (The
portfolios of subprime mortgages have the same default rates.) An ABS CDO is then
created from the mezzanine tranches with the same allocation of principal. Losses on the
mortgage portfolio prove to be 16%. What, as a percent of tranche principal, are losses
on the mezzanine tranche of the ABS CDO
A. 50%
B. 60%
C. 80%
D. 100%
6. Suppose that ABSs are created from portfolios of subprime mortgages with the following
allocation of the principal to tranches: senior 80%, mezzanine 10%, and equity 10%. (The
portfolios of subprime mortgages have the same default rates.) An ABS CDO is then
created from the mezzanine tranches with the same allocation of principal. Losses on the
mortgage portfolio prove to be 16%. What, as a percent of tranche principal, are losses
on the senior tranche of the ABS CDO
A. 50%
B. 60%
C. 80%
D. 100%
12. Which of the following were introduced before the credit crisis that started in 2007
A. Basel II
B. Dodd-Frank
C. Basel III
D. Requirements for living wills
13. Which of the following is true as the correlation between mortgage defaults increases?
A. Equity tranches are almost certain to incur losses
B. Senior tranches become more likely to incur losses
C. The expected number of defaults increases
D. Equity tranches are unaffected
15. Suppose that ABSs are created from portfolios of subprime mortgages with the following
allocation of the principal to tranches: senior 85%, mezzanine 10%, and equity 5%. (The
portfolios of subprime mortgages have the same default rates.) An ABS CDO is then
created from the mezzanine tranches with the same allocation of principal. How high can
losses on the mortgages be before the mezzanine tranche of the ABD CDO bears losses?
A. 5.0%
B. 5.5%
C. 6.0%
D. 6.5%
16. Suppose that ABSs are created from portfolios of subprime mortgages with the following
allocation of the principal to tranches: senior 85%, mezzanine 10%, and equity 5%. (The
portfolios of subprime mortgages have the same default rates.) An ABS CDO is then
created from the mezzanine tranches with the same allocation of principal. How high can
losses on the mortgages be before the senior tranche of the ABS CDO bears losses?
A. 5.5%
B. 6.0%
C. 6.5%
D. 7.0%
17. Suppose that ABSs are created from portfolios of subprime mortgages with the following
allocation of the principal to tranches: senior 94.5% (rated AAA), mezzanine 0.1% (rated
BBB), and equity 5% (rated C) . The portfolios of subprime mortgages have the same
default rates. An ABS CDO is then created from the mezzanine tranches. Which of the
following is true?
A. The ABS CDO tranches should have similar ratings ranging from AAA to C
B. The ABS CDO tranches should all be rated BBB
C. The ABS CDO tranches should all be rated C
D. The ABS CDO tranches are almost worthless because the mezzanine tranches are so thin
20. Which of the following would be described by the term “liar loan”?
A. A situation where the lender concealed information from the borrower
B. A situation where the lender lied to the borrower about the interest rate
C. A situation where the borrower lied about the his or her income
D. None of the above