Unformatted text preview: the first payment? Explain in words, no calculations necessary. 7. Suppose a subprime asset-backed security has a collateral of $600 million and has a senior tranche of $400 million, a subordinated tranche 1 of $120 million, and a subordinated tranche 2 of $70 million. What is the overcollateralization of this structure? Explain. 8 . Now suppose that the subprime crisis hits and fully $100 million of losses due to defaults occur. What are the losses for each of the three tranches? 9 . Log onto the Board of Governors web site, and read about its new term auction facility: http://www.federalreserve.gov/monetarypolicy/files/TAFfaqs.pdf Write a couple lines explaining what it is and what relevance it has to the subprime crisis....
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- Spring '08
- Economics, Subprime mortgage crisis, Structured finance, Collateralized debt obligation