Ultimate access to all questions.
Upgrade Now 🚀
Sign in to unlock AI tutor
Which strategy would exploit the arbitrage opportunity? How much would your return exceed LIBOR?
A
Buy the bond and the CDS with a risk-free gain of 1.9%.
B
Buy the bond and the CDS with a risk-free gain of 0.32%.
C
Short the bond and sell CDS protection with a risk-free gain of 4.97%.
D
There is no arbitrage opportunity as any apparent risk-free profit is necessarily compensation for being exposed to the credit risk of the issuer.
