CFA Practice Question

There are 252 practice questions for this study session.

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.

Which settlement method would investor X prefer?
A. physical settlement.
B. cash settlement.
C. no preference. Either one would yield the same result.
Explanation: Physical settlement: X would deliver $10 million Bond A for $10 million cash.

Cash settlement: X would receive $8 million, and sell Bond A for $2 million. Total proceeds: $8 + $2 = $10 million.

User Contributed Comments 0

You need to log in first to add your comment.