In 2 0 2 3 , as a bond portfolio manager, you owned $ 1 million worth

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Question:

2023,

as a bond portfolio manager, you owned $

1

million worth of Rite Aid bonds. Because you were concerned about the credit risk of Rite Aid, you bought $

1

million worth of credit default swaps on Rite Aid. Rite Aid filed for bankruptcy in October

2023 .

Your CDS called for cash settlement. Suppose bondholders can recover

42

cents on the dollar on the cheapest deliverable bond. Thus, the recovery rate is

0.42 .

How much will you receive from the CDS seller under the cash settlement?

Posted Date: May 13, 2024 01:41 AM

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In 2 0 2 3 , as a bond portfolio manager, you owned $ 1 million worth

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