Given the allocation of cash flows shown in the diagram below, what is the maximum percent of losses that can be sustained in the underlying mortgages before the senior tranche of the CDO (i.e., the one with 80% principal) suffers any losses? Mortgages 100% O A. 11% OB. 13% O C. 16% OD. 20% O E. 25% Senior Tranche 75% Mezzanine Tranche 15% Equity Tranche 10% Senior Tranche 80% Mezzanine Tranche 15% Equity Tranche 5%

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Liquidity Risk Exposure

Answer: c