Consider a CDO with a total notional of $500 million, consisting of three tranches: Senior (75%), Mezzanine (15%), and Equity (10%). The underlying portfolio has a total expected loss of 6%. a. Calculate the expected losses for each tranche, assuming they follow the standard tranche subordination rules. b. If the actual realized losses are 30%, determine the losses allocated to each tranche. c. Plot a graph that shows how the payoff of the holders to the Mezzanine tranche owners varies with the value of the assets in the mortgage pool at the time of maturity. d. Represent this payoff as a combination of payoffs of options and risk-free debt for Mezzanine tranche. e. Suppose the CDO manager decides to create a fourth tranche, called the Super- Senior tranche, which has the highest priority in the cash flow waterfall. If the Super-Senior tranche is sized at 50% of the total notional, recalculate the expected losses for all tranches. (hint: Super- Senior tranche is created out of Senior tranche). f. Explain how the inclusion of the Super-Senior tranche impacts the risk profile of the other tranches, particularly the Senior tranche.

An investment advisor has recommended a R50,000 portfolio containing assets R, J, and K; R25,000 will be invested in asset R, with an expected annual return of 12 percent; R10,000 will be invested in asset J, with an expected annual return of 18 percent; and R15,000 will be invested in asset K, with an expected annual return of 8 percent. What is the expected annual return of this portfolio? What is the correct answer?    A. 12.01%  B. 12.00%  C. 11.98%  D. 12.93%

In the following exercise, separate the investments according to the type of Keynesian demand they are: Transactions (0% to 5%), Precautionary (6% to 9%), and Speculative demand (greater than 10%). Investment in each category has the same risk. So you want to invest in the highest return for the same risk. Take each demand type and choose the highest return and put that amount into the investment. For example, if Bond fund A has a return of 4% and Fund B has a return of 5%, they have the same risk, so you would put $70 into bond fund B.       You have the following investments Opportunities ad returns. Fidelity Bonds                                       11% Fidelity Magellan                                    9% Putman Bonds one                                4% Putman bonds Two                            12% Growth Stock One                               15% Growth and Income                             8% Income Fund                                           3% Putman Growth…

Which of the following investments will experience the largest change in its market value as a result of changes in the level of interest rates (we are talking about the absolute value of the change, up or down)? Suppose interest rates go up or down by 50 basis points (0.5%). Rank the investments from 1 to 4 where a 1 is the most affected (largest absolute change in value) while a 4 is the least affected (smallest absolute change in value). A: $1 million invested in 3-month Treasury bills. 请选择~ B: $1 million invested in STRIPS (zero coupons) maturing in three years. |请选择 C: $1 million invested in a Treasury note maturing in three years. The note pays a 5% annual coupon. |请选择︾ D: $1 million invested in a Treasury note maturing in three years. The note pays a 10.0% annual coupon. |请选择