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Which of the following statements describe part of the risk mitigation process for a collateralized debt obligation (CDO)?
I. Default risk is restructured in such a way that previously lower-rated issues can be re-formulated into highly rated debt instruments.
II. The equity tranche has no certain return and bears the highest level of default risk.
A
I only.
B
II only.
C
Both I and II.
D
Neither I nor II.