Which of the Following Happens When Default Correlation of the Companies

Which of the following happens when default correlation of the companies underlying a CDO increases? choose one)

A) The value of the senior tranche and the equity tranche to the protection buyer both increase.
B) The value of the senior tranche and the equity tranche to the protection buyer both decrease.
C) The value of the senior tranche to the protection buyer decreases and the value of the equity tranche to the protection buyer increases.
D) The value of the senior tranche to the protection buyer increases and the value of the equity tranche to the protection buyer decreases.

Correct Answer:

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