- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 30. Credit Default Swaps
- Subject 2. Credit Events and Settlement Protocols
CFA Practice Question
There are two series of outstanding senior bonds issued by a company, which has filed for bankruptcy. Bond A trades at 20% of par, and Bond B trades at 30% of par. Investor X owns $10 million of bond A and investor Y owns $10 million of bond B. They both own $10 million of CDS protection.
B. 25%.
C. 30%.
What is the recovery rate for the CDS contract of X's?
A. 20%.
B. 25%.
C. 30%.
Correct Answer: A
The cheapest-to-deliver obligation is Bond A. Recovery rate for both CDS contracts is 20%.
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