If You Are Interested in Speculating on a Deterioration in the Credit

question 26

Multiple Choice

If you are interested in speculating on a deterioration in the credit quality of a company,which of the following would be appropriate?

• A)Buy the bonds of the company.
• B)Short the forwards on the credit spread of the company.
• C)Buy credit spread call options on the company's bonds (i.e. ,options that pay off if the spread widens).
• D)Sell put options on the company's bonds.

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Definitions:

Paycheck

A regular payment made by an employer to an employee, usually on a monthly or biweekly basis.

Variable Schedule

A variable schedule in the context of reinforcement refers to a procedure in which rewards are given at unpredictable intervals, influencing behavior.

Extinction

In psychology, the gradual weakening of a conditioned response when the conditioned stimulus is presented without the unconditioned stimulus.

Conditioned Reinforcer

A stimulus that has become reinforcing through its association with a primary reinforcer.