2. A CBO (collateralized bond obligation) consists of several tranches of notes from a repackaging of corporate bonds, ranging from equity to super senior. Which of the following is generally true of these structures?
　　A.      The total yield of all the CBO tranches is slightly less than the underlying repackaged bonds to allow the issuer to recover fees/costs/ profits.
　　B.       The super senior tranche has expected loss rate higher than the junior tranche.
　　C.       The super senior tranche is typically rated below AAA and sold to bond investors.
　　D.      The equity tranche does not absorb the first losses of the structure.
　　ANSWER:
　　2. Correct Answer: A
　　In the absence of transaction costs or fees, the yield on the underlying portfolio should be equal to the weighted average of the yields on the different tranches. With costs, however, the CBO yield will be slightly less. Otherwise, the senior tranche is typically rated AAA, has the lowest loss rate of all tranches, and absorbs the last loss on the structure.