Question
If an investor buys a 12-month credit spread put option on XYZ Ltd.s bond with a strike spread of 150bps for a premium of 55
If an investor buys a 12-month credit spread put option on XYZ Ltd.s bond with a strike spread of 150bps for a premium of 55 bps, what is the appropriate course of action if XYZ Ltds spread tightens to 50bps? Widens to 250bps? What is the breakeven level of trade? Illustrate your answers with the bond value movements. (5 marks)
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Financial Management Principles And Applications
Authors: Arthur J. Keown, J. William Petty, John D. Martin, Jr. Scott, David F.
10th Edition
0131450654, 9780131450653
