If a Tranche Spread Is 55 Basis Points and the Fixed

Multiple Choice

If a tranche spread is 55 basis points and the fixed coupon is 60 basis points,which of the following happens when a trader buys protection?

A) The trader pays an estimate of the present value of 5 basis points per year and then pays 55 basis points per year
B) The trader pays an estimate of the present value of 5 basis points per year and then pays 60 basis points per year
C) The trader receives an estimate of the present value of 5 basis points per year and then pays 55 basis points per year
D) The trader receives an estimate of the present value of 5 basis points per year and then pays 60 basis points per year