Question

Credit tranching allows investors to choose between:

a) Different types of bonds
b) Different credit ratings
c) Different maturities
d) Different risk levels within a bond

Answer 1

Credit tranching allows investors to choose different risk levels within a bond.

Step-by-step explanation:

Credit tranching allows investors to choose different risk levels within a bond. It is a process of dividing a bond into different levels of risk and selling them as separate securities.

For example, in a mortgage-backed security, investors can choose to invest in tranches that have higher credit ratings and lower risk or invest in tranches that have lower credit ratings and higher risk.

By allowing investors to select the risk level, credit tranching provides flexibility and helps to attract a broader range of investors.