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c. If Big Bank would have invested $20 directly into MBS (the same type of loans as Quick Money) and 15% of the underlying loans would have defaulted, the loss for Big Bank would have been exactly $ This would have been (better / worse) than the investment in the tranches.

c. If Big Bank would have invested $20 directly into MBS (the same type of loans as Quick Money) and 15% of the underlying loans would have defaulted, the loss for Big Bank would have been exactly $ This would have been (better / worse) than the investment in the tranches.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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c. If Big Bank would have invested $20 directly into MBS (the same type of loans as Quick Money) and 15% of the underlying loans would have defaulted, the loss for Big Bank would have been exactly $ This would have been (better / worse) than the investment in the tranches. d. Continue with your balance sheet from b) after the losses. If Big Bank would swap all its loans against Quick Money A3 tranches, its RWA would change to $ (no rounding!). Check if Big Bank is now achieving its minimum CAR of 10% again.
Transcribed Image Text:c. If Big Bank would have invested $20 directly into MBS (the same type of loans as Quick Money) and 15% of the underlying loans would have defaulted, the loss for Big Bank would have been exactly $ This would have been (better / worse) than the investment in the tranches. d. Continue with your balance sheet from b) after the losses. If Big Bank would swap all its loans against Quick Money A3 tranches, its RWA would change to $ (no rounding!). Check if Big Bank is now achieving its minimum CAR of 10% again.
Assets Liabilities and equity Cash $10 Demand $90 deposits Quick Money Aaa $15 Equity $10 tranche Quick Money Ba1 $5 tranche Loans (risk weight 100%) $70
Transcribed Image Text:Assets Liabilities and equity Cash $10 Demand $90 deposits Quick Money Aaa $15 Equity $10 tranche Quick Money Ba1 $5 tranche Loans (risk weight 100%) $70
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