An institutional bond portfolio manager AMA is concerned about a likely negative impact on the credit...

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An institutional bond portfolio manager AMA is concerned about a likely negative impact on the credit rating of their $500 million bond portfolio. An investment bank quotes AMA several CDS contracts and in line with the credit rating of AMA's bond portfolio, they quote a CDS with a price of 63.00 basis points. 17. What trade would you recommend to AMA to protect against a credit downgrade? A) Long CDS B) Short CDS C) Long FRA D) Short FRA E) Long T-Bond futures contract 18. Given your recommendation in question 17, what will the position cost AMA? A) AMA must pay a quarterly premium of $78 750 000 B) AMA will pay a quarterly premium of $78 750 000 C) AMA will pay an annual floating rate of 1.63% D) AMA will receive a quarterly premium of $787 500 E) AMA must pay a quarterly premium of $787 500 An institutional bond portfolio manager AMA is concerned about a likely negative impact on the credit rating of their $500 million bond portfolio. An investment bank quotes AMA several CDS contracts and in line with the credit rating of AMA's bond portfolio, they quote a CDS with a price of 63.00 basis points. 17. What trade would you recommend to AMA to protect against a credit downgrade? A) Long CDS B) Short CDS C) Long FRA D) Short FRA E) Long T-Bond futures contract 18. Given your recommendation in question 17, what will the position cost AMA? A) AMA must pay a quarterly premium of $78 750 000 B) AMA will pay a quarterly premium of $78 750 000 C) AMA will pay an annual floating rate of 1.63% D) AMA will receive a quarterly premium of $787 500 E) AMA must pay a quarterly premium of $787 500

Answer rating: 100% (QA)

17 To protect against a credit downgrade AMA should ... View the full answer