Question: How were the risks in ABS CDOs misjudged by the market? Question 5 Answer a . Rating agencies provided too low ratings for ABS CDOs.

How were the risks in ABS CDOs misjudged by the market?
Question 5Answer
a.
Rating agencies provided too low ratings for ABS CDOs.
b.
Investors did not realize that the tranches underlying ABS CDOs cannot be wiped out completely.
c.
Investors underestimated default correlations between mortgages in a stressed market.
d.
Investors overestimated default correlations between mortgages in a stressed market.

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