An Australian company encounters a credit event, triggering various CDS contracts. It has two series of...
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An Australian company encounters a credit event, triggering various CDS contracts. It has two series of senior bonds outstanding: Bond A trades at 40% of par, and Bond B trades at 50% at par. Investor X owns AUD20 million of Bond A and owns AUD20 million of CDS protection. Investor Y owns AUD20 million of Bond B and owns AUD20 million of CDS protection. As a credit analyst, your manager assigns you the following task: Required Define a credit event and discuss different types of credit events. a. b. Determine the recovery rate for both CDS contracts C. I (2 marks) Explain whether Investor X would prefer to cash settle or physically settle her CDS contract or whether she is indifferent. (6 marks) (6 marks) d. Explain whether Investor Y would prefer to cash settle or physically settle her CDS contract or whether she is indifferent. (6 marks) An Australian company encounters a credit event, triggering various CDS contracts. It has two series of senior bonds outstanding: Bond A trades at 40% of par, and Bond B trades at 50% at par. Investor X owns AUD20 million of Bond A and owns AUD20 million of CDS protection. Investor Y owns AUD20 million of Bond B and owns AUD20 million of CDS protection. As a credit analyst, your manager assigns you the following task: Required Define a credit event and discuss different types of credit events. a. b. Determine the recovery rate for both CDS contracts C. I (2 marks) Explain whether Investor X would prefer to cash settle or physically settle her CDS contract or whether she is indifferent. (6 marks) (6 marks) d. Explain whether Investor Y would prefer to cash settle or physically settle her CDS contract or whether she is indifferent. (6 marks)
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Answer rating: 100% (QA)
a A credit event is an event that adversely affects the creditworthiness of a entity such as a compa... View the full answer
Related Book For
Financial Reporting And Analysis
ISBN: 9781260247848
8th Edition
Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer
Posted Date:
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