QUESTION 34 The Ajax Manufacturing Company declared bankruptcy with several outstanding debt issues. One of its bondholders had purchased a single-entity, senior CDS contract with Ajax as the reference entity and $1 million notional. Bond 1: senior unsecured bond trading at 55 percent of par Bond 2: senior unsecured bond trading at 50 percent of par Bond 3: subordinated unsecured bond trading at 35 percent of par The payout amount on the CDS will be closest to: a) $650,000 b) $500,000 c) $450,000 QUESTION 7 A 3-year, 6% coupon, semiannual pay note has a yield to maturity of 5.5%. If an investor holds this note to maturity and earns a 4.5% return on reinvested coupon income, his realized yield on the note is closest to A) 5.409 B) 5.57% C) 5.68% OA QUESTION 8 The buyer of a CDS would most likely be able to unwind his position with a profit if: a) The reference entity's credit quality deteriorates. b) The reference entity's credit spread narrows. c) The prevailing interest rates rise. Ooo QUESTION 10 Consider the following statements: Statement 1: Generally speaking, the higher the correlation of default among index constituents, the higher the cost of obtaining credit protection on the index CDS. Statement 2: If the standard coupon rate on a CDS is higher than the credit spread of the reference obligation, the protection buyer will pay an upfront premium to the protection seller. Which of the following is most likely? a) Only Statement 1 is correct. b) Only Statement 2 is correct. c) Both statements are incorrect. o oo