In his book bailout nation financial blogger barry ritholtz, Ask an Expert

Finance

In his book Bailout Nation, financial blogger Barry Ritholtz had this to say about AIG and credit default swaps (CDSs): Set all of the complexity aside, and at its heart a CDS is merely a bet as to whether a company is going to default on its bonds. According to AIGFP's [the financial division of AIG] computer models, the odds were 99.85 percent against ever having to make payment on a CDS.

a. What is a CDS?

b. How is a CDS similar to insurance?

c. Why might AIG's computer models have given an incorrect forecast of the likelihood of the firm having to make a payment on the CDSs they were selling? What was different about the housing market in the United States during the early 2000s compared with previous years, and how might that difference have been relevant to AIG?

d. Can a CDS be both a hedging or insurance instrument and a speculative bet?

View complete question

Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92058870

Have any Question?Write your Review or question?

Related Questions in Basic Finance

Innbspmid-2009 rite aid hadnbspccc-ratednbsp20-year bonds

In? mid-2009, Rite Aid had? CCC-rated, 20-year bonds outstanding with a yield to maturity of 17.3%. At the? time, similar maturity Treasuries had a yield of 5%. Suppose the market risk premium is 4% and you believe Rite? ...

Morgan jennings a geography professor invests 50000 in a

Morgan Jennings, a geography professor, invests $50,000 in a parcel of land that is expected to increase in value by 12 percent per year for the next five years. He will take the proceeds and provide himself with a 10-ye ...

What do you think happened to bond prices when interest

What do you think happened to bond prices when interest rates went down in the US after the GFC?

Oceangate sells external hard drives for 300 each its total

OceanGate sells external hard drives for $300 each. Its total fixed costs are $30 million, and its variable costs per unit are $240. The corporate tax rate is 30%. If the economy is strong, the firm will sell 2 million d ...

Answer as thorough as possible include an explanation of

Answer as thorough as possible, Include an explanation of your recommendations or trading strategies. Should you early exercise the following American-style put option? If not always, under what situation would you early ...

A preferred stock promises to pay 366 in interests every

A preferred stock promises to pay $3.66 in interests every year. The required rate of return is 7.60%. What's the fair price of this preferred stock?

You are planning to make annual deposits of 4440 into a

You are planning to make annual deposits of $4,440 into a retirement account that pays 9 percent interest compounded monthly. How large will your account balance be in 32 years? (Do not round intermediate calculations a ...

1 i dont understand what major benefits do corporations and

1. I don't understand what major benefits do corporations and investors enjoy because of the existence of organized security exchanges? 2. What is a dividend? 3. Within a corporation, who decides whether to pay dividen ...

In 2010 47250 air conditioning units were sold in fulton

In 2010 47,250 air conditioning units were sold in Fulton County. Glacial HVAC Inc. sold 3,299 units in 2010, compared to 2009 sales of 3,936 units. Calculate the percent change in Glacial's sales, from 2009 to 2010. Rep ...

A plaintiff is suing the city for injuries sustained after

A plaintiff is suing the city for injuries sustained after a freak street sweeper accident. In the trial, doctors testified that it will be five years before the plaintiff is able to return to work. The jury has already ...

4,153,160 Questions Asked
13,132 Experts
2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Recent Questions

Ask Basic Finance Expert