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NEW QUESTION: 1
Which of the following statements is true for a Credit Linked Note (CLN)?
A. The investor in the note is the protection buyer
B. The investor in the note is the protection seller
C. If a credit default occurs, the investors will get their full money back
D. The CLN will yield the risk free rate
Answer: B
Explanation:
Explanation
A CLN is a form of a funded credit derivative. The investors in the note are the protection sellers, and receive the CDS premiums in addition to any risk free rate on their investment. If a default occurs, the money put up by the investors in the CLN is used to make good the party that has brought the protection.
Therefore if a default occurs, the investors in a CLN do not receive their entire investment back, but only what remains after fullfilling their obligations on the credit protection, plus any premiums that might have been earned. In return for this risk, the CLN yields the risk free rate plus the CDS premiums. Only Choice 'd' is correct, all other options are incorrect.

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