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).

---

Definitions:

12b-1 Fee

A fee that mutual funds may charge their shareholders for marketing, distribution, and service expenses.

Class A

Refers to a classification of shares that might have more voting rights or higher dividends than Class B or other classes.

Class B

Typically refers to a classification of shares or assets that have certain characteristics or rights different from Class A shares, often with fewer voting rights.

Specialized-sector Funds

Specialized-sector Funds focus investments on specific sectors of the economy, such as technology, healthcare, or finance, aiming for higher returns from these niche areas.