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Essentials Of Investments
Found in: Page 329
Essentials Of Investments

Essentials Of Investments

Book edition 9th
Author(s) Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus
Pages 748 pages
ISBN 9780078034695

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Short Answer

An investor believes that a bond may temporarily increase in credit risk. Which of the following would be the most liquid method of exploiting this?

a. The purchase of a credit default swap.

b. The sale of a credit default swap.

c. The short sale of the bond

a. The purchase of a credit default swap.

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Step by Step Solution

Definition

Liquidity is the ability of an asset to change into cash.

Calculation of Current yield

The investor in the above situation believes that the bond may increase in credit risk which raises the price of credit default swaps due to widened swap spread.

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