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Consider two bonds X and Y, each of which pays $1000 after one year if...

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Consider two bonds X and Y, each of which pays $1000 after one year if it does not default, and $0 otherwise. The default probabilities are 1/4 and 1/5 respectively, and the default correlation is zero. The bonds are bundled to form an asset pool against which two tranches (senior and junior) are issued. A. Find the expected payment for each tranche. B. If the senior tranche is priced at $900, what is its expected return? Consider two bonds X and Y, each of which pays $1000 after one year if it does not default, and $0 otherwise. The default probabilities are 1/4 and 1/5 respectively, and the default correlation is zero. The bonds are bundled to form an asset pool against which two tranches (senior and junior) are issued. A. Find the expected payment for each tranche. B. If the senior tranche is priced at $900, what is its expected return

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