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

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