Question: CDO 4: Consider a situation with subprime loans are packaged into an MBS with the MBS Mezzanine tranche repackaged into a CDO. The MBS is

CDO 4: Consider a situation with subprime loans are packaged into an MBS with the MBS Mezzanine tranche repackaged into a CDO. The MBS is 80% Senior, 15% Mezzanine, 5% Equity. The CDO takes that 15% mezzanine and tranches it into 66.66% Senior, 20% mezzanine and 13.33% Equity. Assume that the default rate on the subprime mortgages is 40%. Because house prices have dropped such that the recovery rate on defaulted loans is 50%. The Mezzanine tranche of the MBS CDO lost _%. (Round to nearest whole percent with no formatting)

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