An investor believes that a bond may temporarily increase in credit risk. Which of the following would be the most liquid method of exploiting this? (LO 10-5)
The purchase of a credit default swap.
The sale of a credit default swap.
The short sale of the bond.
Which of the following most accurately describes the behavior of credit default swaps? (LO 10-5)
When credit risk increases, swap premiums increase.
When credit and interest rate risk increases, swap premiums increase.
When credit risk increases, swap premiums increase, but when interest rate risk increases, swap premiums decrease.
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