Scan QR code or get instant email to install app
Question:
Consider the following statements:
Statement 1: In a credit default swap, the protection seller is betting that the reference entity will default.
Statement 2: All other things remaining the same, an American option must have the same value as a European option at expiration.
Which of the following is most likely?
A
Only one statement is correct.
explanation
• In a credit default swap, the protection seller is betting that the reference entity will not default. Effectively, it is providing insurance against credit risk to the protection buyer.
• At expiration, all options are worth their exercise value.
Take more free practice tests for other PASSEMALL topics with our cfa level 1 practice questions now!
Related Information
Comments