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  3. 1. suppose we have a collateralized debt obligatio

1. Suppose we have a collateralized debt obligation for the special purpose entity. It totally...

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Finance

1. Suppose we have a collateralized debt obligation for the special purpose entity. It totally collected $1 billion from the investors, and the interest rate is 10%. Assume the special purpose entity is splited into 1 million shares. The senior tranche gets 400,000 shares, the mezzannie tranche gets 300,000 shares, and the equity tranche gets 300,000 shares. How much return the three tranches will get each year? If there are 25% of borrowers start to default, and theres only 50% recovery, what are the returns for each of the tranche per year? How about when 80% of borrowers defaulting, and theres only 50% recovery?

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