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Basic Question 9 of 9
Suppose a company has been having problems. It may be possible to buy the company's outstanding debt (usually bonds) at a discounted price. If the company has $1 million worth of bonds outstanding, it might be possible to buy the debt for $900,000 from another party if that party is concerned that the company will not repay its debt. If the company does in fact repay the debt, you would receive the entire $1 million and make a profit of $100,000. Propose an alternative way to take advantage of this opportunity without investing $900,000.
User Contributed Comments 1
| User | Comment |
|---|---|
| tianhes | This is the intuition behind credit default swaps. |
Your review questions and global ranking system were so helpful.
Lina
Learning Outcome Statements
describe credit default swaps (CDS), single-name and index CDS, and the parameters that define a given CDS product;
CFA® 2025 Level II Curriculum, Volume 4, Module 30.