AQR Capital Management an investment management firm recently bought $100,000,000 worth of A-rated GE bonds but following
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AQR Capital Management an investment management firm recently bought $100,000,000 worth of A-rated GE bonds but following a downgrade of the bonds to BBB the portfolio manager is increasingly worried about the increasing default risk. The portfolio manager is considering buying a 5-year CDS on GE trading at 180 basis points to protect the entire investment.
a. What are the yearly payments AQR must make every year?
b. Suppose the spreads widen to 200 basis points. How can AQR profit from this development?
c. Suppose GE defaults exactly 2 years after the purchase of the CDS and the bonds are now currently worth $45,000,000. If AQR did not sell or cover its CDS position, how much do they stand to profit from it?
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AQR Capital Management and GE Bonds CDS Analysis a Yearly CDS Payments Notional amount 100000000 Cou...View the full answer
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Related Book For 
Multinational Financial Management
ISBN: 9781119559900
11th Edition
Authors: Alan C Shapiro, Paul Hanouna
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