The Fair Price of a CDS Contract on a Reference

question 11

Multiple Choice

The fair price of a CDS contract on a reference bond is equivalent to that of a spread on a floating-rate bond issued by the same entity as the reference bond and that

• A)Is trading at par.
• B)Has the same maturity as the CDS.
• C)Has the same seniority as the reference bond underlying the CDS.
• D)Has all three properties listed above.

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Definitions:

Power of Attorney

A legal document granting one person (the agent) the power to act on behalf of another (the principal), especially in legal or financial matters.

Legal Documents

Written materials that are officially recognized and enforce certain rights or obligations.

Agent

An individual or entity authorized to act on behalf of another, often in a business or legal matter.

Principal-Agent

Refers to a relationship where one party (the principal) grants authority to another party (the agent) to act on their behalf in transactions or other matters.