medium · Asset-Backed Securities
A rating agency is sizing credit enhancement for an auto ABS. The 'base case' lifetime cumulative net loss (CNL) is 2.5%. To achieve a AAA rating, they apply a 4.5x multiple, a timing stress factor of $1.15 (front-loading), and a prepayment stress factor of $1.08 (extending average life).
What is the total effective loss stress the senior bond must survive?
- 13.97%
- 2.50%
- 9.23%
- 11.25%
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