A Credit Default Swap (CDS)on a Bond with Physical Delivery

question 11

Multiple Choice

A credit default swap (CDS) on a bond with physical delivery is:

• A) a term insurance policy,with a regular premium payment,that pays the face value of the bond if there is a credit event
• B) a term insurance policy,with a regular premium payment,that pays the value of the firm's equity if there is a credit event
• C) a term insurance policy,with a one time up-front premium,that pays the face value of the bond if there is a credit event
• D) a term insurance policy,with a one time up-front premium,that pays the value of the firm's equity if there is a credit event
• E) None of these answers are correct.

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