Answer: The effective maturity of a CDS is reduced by including a mutual put in the master agreement.

## Explanation Let's analyze each option: **A. The effective maturity of a CDS is reduced by including a mutual put in the master agreement.** - **CORRECT** - A mutual put option allows either party to terminate the CDS contract early - This reduces the effective maturity of the CDS since it can be terminated before the scheduled maturity date - Early termination features shorten the actual duration of credit exposure **B. To purchase a single-name CDS contract, the buyer must also own the reference asset.** - **INCORRECT** - CDS buyers do NOT need to own the reference asset (this is called "naked" CDS) - CDS can be purchased for hedging purposes (if you own the asset) or for speculative purposes (if you don't) **C. Typically, there is only one reference asset that can be delivered to satisfy a CDS contract.** - **INCORRECT** - Most CDS contracts allow for delivery of multiple deliverable obligations - The "cheapest-to-deliver" option allows the protection buyer to choose from a basket of eligible bonds **D. CDS contracts can only be satisfied through cash settlement.** - **INCORRECT** - CDS contracts can be settled through either: - Physical settlement (delivery of bonds) - Cash settlement (payment of cash difference) - Auction settlement (most common method today) Therefore, only statement A is correct regarding credit default swaps.

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