Explain what happens to the IRR (Internal rate of return) and risk exposure to a CLO’s (Collaterized Loan Obligation) equity tranche when we have a worsening economy.
When there's a worsening economy, the return on equity would be very low and therefore the interest required torecover that amount for a specified period of time would be very high and therefore this is the internal rate of return which increases and similarly when there is a worsening economy the risk of investing would also be high as there is always a chance for the economy to shrink all in all.
Explain what happens to the IRR (Internal rate of return) and risk exposure to a CLO’s...