You collect the following data on yields and CDS spreads (all denominated in euros): Maturity (yrs)...

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You collect the following data on yields and CDS spreads (all denominated in euros): Maturity (yrs) 3 5 7 Bunds -.25% -.13% 0% Daimler Bonds .25% .57% .75% Daimler CDS 45 bps 58 bps 64 bps a) Which maturity offers the best yield relative to Bund yields (i.e., residual spread) if you decide to buy Daimler bonds and hedge with Daimler CDS? b) Assume Daimler issued a new euro-denominated 6-year bond at par with a coupon (= yield) of .68% p.a. Would you probably choose this bond for your strategy over your choice in part a) assuming you were indifferent to maturity? Explain your answer. You collect the following data on yields and CDS spreads (all denominated in euros): Maturity (yrs) 3 5 7 Bunds -.25% -.13% 0% Daimler Bonds .25% .57% .75% Daimler CDS 45 bps 58 bps 64 bps a) Which maturity offers the best yield relative to Bund yields (i.e., residual spread) if you decide to buy Daimler bonds and hedge with Daimler CDS? b) Assume Daimler issued a new euro-denominated 6-year bond at par with a coupon (= yield) of .68% p.a. Would you probably choose this bond for your strategy over your choice in part a) assuming you were indifferent to maturity? Explain your answer.

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a To determine the maturity that offers the best yield relative to Bund yields residual spread when ... View the full answer