A type of investment that gives investors the ability to invest in only one aspect of a bond--e.g., time element or default element is called a
A)collateralized obligation (CO).
B)callable bond.
C)contingent payoff swap (CPS).
D)credit default swap (CDS).

Question

Quizplus · Accepted Answer

The investment described is a credit default swap (CDS), which allows investors to buy or sell protection against a bond defaulting. This means investors can isolate and invest in the default element of a bond without having to hold the whole bond. A credit default swap (CDS) allows investors to invest only in the default element of a bond, without having to purchase the entire bond.

A Type of Investment That Gives Investors the Ability to Invest