In Regards to a Credit-Linked Note (CLN), Which of the Below

question 1

Multiple Choice

In regards to a credit-linked note (CLN) , which of the below statements is FALSE?

• A) In contrast to a standard bond, the maturity value does not depend on the performance of the reference issuer.
• B) If a credit event occurs with respect to the reference issuer, then (1) the bond is paid off, and (2) the maturity value is adjusted down.
• C) The compensation for the investor accepting the credit risk of the reference issuer is an enhanced coupon payment.
• D) Typically, CLNs have a maturity of anywhere from three months to several years, with one to three years being the most likely term of credit exposure.

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Definitions:

Opportunity Cost

The loss of potential gain from other alternatives when one alternative is chosen.

Soft Drink Dispensing

The process or equipment used for serving soft drinks, typically seen in restaurants, convenience stores, or vending machines.

Marginal Costs

The augmentation in total expenditures resulting from the production of an additional unit of a product or service.

Law of Diminishing

Refers to the Law of Diminishing Returns, which states that continuing to increase one input, while holding others constant, will eventually result in smaller and smaller additions to output.