不考虑duration吗?

问题如下：

Deem Advisors' chief credit analyst recently reported that Tollunt Corporation's five-year bond is currently yielding 7% and a comparable CDS contract as a credit spread of 4.25%. Since MRR is 2.5%, Watt has recommended executing a basis trade to take advantage of the pricing of the Tollunt's bonds and CDS. The basis trade would consist of purchasing both the bond and the CDS contract.

Based on basis trade for Tollunt Corporation, if convergence occurs in the and CDS markets, the trade will capture a profit closest to

选项：

A.

0.25%

B.

1.75%

C.

2.75%

解释：

Correct Answer: A

A difference in credit spreads in the bond market and CDS market is the foundation of the basis trade strategy. If the spread is higher in the bond market than the CDS market, it is said to be a negative basis. In this case, the bond credit spread is currently 4.50% (bond yield minus MRR) and the comparable CDS contract has a credit spread of 425%. The credit risk is cheap in the CDS market relative to the bond market. Since the protection and the bond were both purchased, if convergence occurs, the trade will capture the 0.25% differential in the two markets (4.5%- 4.25%).

B is incorrect because the bond market implies a 4.50% credit risk premium (bond yield minus MRR) and the CDS market implies a 4.25% credit risk premium. Convergence of the bond market credit risk premium and the CDS credit risk premium would result in capturing the differential, 0.25%. The 1.75% is derived by incorrectly subtracting MRR from the credit spread on the CDS (= 4.25%- 2.50%).

C is incorrect because convergence of the bond market premium and the CDS credit risk premium would result in capturing the differential, 0.25%. The 2.75% is derived incorrectly by subtracting the credit spread on the CDS from the current bond yield (= 7.00% - 4.25%)