Consider an ABS that contains three zero-coupon bonds of $100 face value. Each bond has...
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Consider an ABS that contains three zero-coupon bonds of $100 face value. Each bond has a 5% probability of default. Assume that three bonds are independent from each other. If the ABS are sliced into three tranches: tranches A, B, and C. Each tranche has a $100 face value. What is the probability of tranche A suffering a loss? A. 0.0125% B. 0.25% C. 0.5% D. 1%
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