Credit Risk in Bonds Involves Uncertainty About Whether the Bond

question 5

Multiple Choice

Credit risk in bonds involves uncertainty about whether the bond will default (default risk) ,and uncertainty about the value of the bonds when they default (recovery risk) .In order to profit from a view that default risk will worsen,while not taking a view on recovery risk,you would most prefer to

• A)Buy a credit default swap (CDS)and sell a digital default swap (DDS).
• B)Sell a credit default swap (CDS)and buy a digital default swap (DDS).
• C)Sell a credit default swap (CDS).
• D)Buy a digital default swap (DDS).

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