In the context of Collateralized Debt Obligations (CDOs), tranches are categorized into equity, mezzanine (junior debt), and senior tranches. These tranches are defined by their attachment and detachment points. The attachment point refers to the level of portfolio losses at which a tranche begins to incur losses, while the detachment point represents the level at which the tranche is completely wiped out by losses. The difference between the attachment and detachment points, known as the tranche thickness, represents the maximum loss that a tranche can withstand.

In the case of option C, the number of attachment and detachment points for each tranche is correctly stated:

• Equity tranche: (0 attachment, 1 detachment) - The equity tranche only has one detachment point, indicating that it is fully exposed to losses once the portfolio losses reach that level.
• Junior debt tranche: (1 attachment, 1 detachment) - The junior debt tranche has one attachment point and one detachment point, indicating that it is protected from losses up to a certain level and is fully exposed to losses once the portfolio losses reach the detachment point.
• Senior debt tranche: (1 attachment, 0 detachment) - The senior debt tranche only has one attachment point, indicating that it is protected from losses up to a certain level but is fully exposed to losses beyond that level.

Choice A is incorrect. While it correctly states that equity tranches have one attachment point and zero detachment points, it incorrectly suggests that senior debt tranches have zero attachment points. In reality, senior debt tranches typically have one attachment point, which