5. Suppose that that the total principal in subprime mortgages funding an ABS is $100 million....
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5. Suppose that that the total principal in subprime mortgages funding an ABS is $100 million. Assume that the amount of principal lost has a log-normal distribution with parameters = 0.05 and σ = 0.8. For parts (c) to (e) refer to Figure 6.5 in the text. a. Determine the mean amount of principal lost. b. Determine the median amount of principal lost. c. What is the probability that the Senior AAA tranche of the Mezz ABS CDO will have no losses? d. What is the probability that the Senior AAA tranche of the CDO of CDO will have no losses? e. What is the probability that the Senior AAA tranche of the CDO of CDO will lose 100% of its principal? 5. Suppose that that the total principal in subprime mortgages funding an ABS is $100 million. Assume that the amount of principal lost has a log-normal distribution with parameters = 0.05 and σ = 0.8. For parts (c) to (e) refer to Figure 6.5 in the text. a. Determine the mean amount of principal lost. b. Determine the median amount of principal lost. c. What is the probability that the Senior AAA tranche of the Mezz ABS CDO will have no losses? d. What is the probability that the Senior AAA tranche of the CDO of CDO will have no losses? e. What is the probability that the Senior AAA tranche of the CDO of CDO will lose 100% of its principal?
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a To determine the mean amount of principal lost we use the formula for the mean of a lognormal dist... View the full answer
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