Suppose that the structure for an asset-backed security is as follows: Senior bond class: $200 million...

Suppose that the structure for an asset-backed security is as follows: Senior bond class: $200 million Subordinated bond class 1: $30 million Subordinated bond class 2: $20 million The subordinated bond class 2 is the first loss piece. If losses due to defaults over the life of the structure total $60 million, what is the amount of loss for the senior bond class?

A. 0 B. $10 million C. $20 million

Expert Solution

Given structure of asset backed security is as follow:

Senior bond Class = $200 million

Subordinated bond class 1 = $30 million

Subordinated bond class 2 = $20 million

IF any loss occur, Subordinated bond class 2 will occur the loss first, then Subordinated bond class 1 and then senior bond class

So for a loss of $60 million, $50 million loss will be for subordinated bonds and rest $10 million will be from senior class bond.

So option B is correct.

jeff jeffy answered 2 years ago

The principal of $280 million for the underlying assets is backed an ABS with the senior...

The principal of $280 million for the underlying assets is backed an ABS with the senior tranche 72%, mezzanine 20% and equity 8%. The principal derived from the mezzanine tranche of the ABS is replaced by an ABS-CDO with the senior tranche 85%, mezzanine 10% and equity 5%. The principal derived from the mezzanine tranche of the ABS-CDO is further replaced by an ABS-CDO-CDO with the senior tranche 85%, mezzanine 10% and equity 5%. If the loss on the underlying...

please explain how student loans are an asset-backed security

Assume a bank’s assets are as follows: Asset Book value Weight Residual mortgage loans 200 million...

Assume a bank’s assets are as follows: Asset Book value Weight Residual mortgage loans 200 million 50% Treasury bills 100 million 0% Commercial loans 200 million 100% Total 500 million The minimum capital requirement is as follows: Tier I should be greater than 4% of the total book value. Tier I + Tier II capital should be greater than 8% of the risk weighted assets. 1. Assume the bank’s Tier I capital is 20 million and Tier II capital is...

write a short essay by using the following words securitization asset- backed security mezzanine tranche CDO...

write a short essay by using the following words securitization asset- backed security mezzanine tranche CDO subprime mortatge flight to quality rating and bubble

Suppose that in a senior college class of 500 students, it is found that 179 smoke,...

Suppose that in a senior college class of 500 students, it is found that 179 smoke, 241 drink alcoholic beverages, 192 eat between meals, 103 smoke and drink alcoholic beverages, 66 eat between meals and drink alcoholic beverages, 73 smoke and eat between meals, and 33 engage in all three of these bad health practices. If a member of this senior class is selected at random, find the probability that the student (a) smokes but does not drink alcoholic beverages;...

Suppose International Digital Technologies decides to raise a total of $200 million, with $100 million as...

Suppose International Digital Technologies decides to raise a total of $200 million, with $100 million as long-term debt and $100 million as common equity. The debt can be mortgage bonds or debentures, but by an iron-clad provision in its charter, the company can never raise any additional debt beyond the original $100 million. Given these conditions, which of the following statements is CORRECT? a. If the debt were raised by issuing $50 million of debentures and $50 million of first...

Delta had a deferred tax asset of $200 million with no valuation allowance on December 31,...

Delta had a deferred tax asset of $200 million with no valuation allowance on December 31, 2020. At the end of 2021, Delta had a deferred tax asset of $230 million before assessing the need for a valuation allowance. For the year 2021, Delta's income taxes payable is $85 million. At the end of 2021, Delta determined that it was more likely than not that 20% of its deferred tax assets will not be realized. What amount should Delta report...

1. Suppose that you are considering the purchase of a coupon bond that has a $200...

1. Suppose that you are considering the purchase of a coupon bond that has a $200 coupon payment every year for 5 years and a $10,000 face value in the 5th year. Suppose the yield to maturity of this bond equals to the market interest rate. a. What is the bond worth today if the market interest rate is 3%? What is the bond’s current yield? (Hint: knowing the interest rate, the value of the bond is how much you...

Compustat Corporation needs $200 million of total financing for the next 5 years. Their capital structure...

Compustat Corporation needs $200 million of total financing for the next 5 years. Their capital structure is currently $10million of preferred stock, $25million of debt, and $45million of common stock. They want to maintain this target capital structure. They have $25million of retained earnings at a cost of 15%. New equity will cost17 %. They can raise $15 million of 6% debt and another $30 million of 7½% debt. The cost of preferred stock is fixed at 12%. TAX RATE =...

Mullet Technologies is considering whether or not to refund a $200 million, 12% coupon, 30-year bond...

Mullet Technologies is considering whether or not to refund a $200 million, 12% coupon, 30-year bond issue that was sold 5 years ago. It is amortizing $9 million of flotation costs on the 12% bonds over the issue's 30-year life. Mullet's investment banks have indicated that the company could sell a new 25-year issue at an interest rate of 11% in today's market. Neither they nor Mullet's management anticipate that interest rates will fall below 11% any time soon, but...

Question