Reference no: EM132375684

1. Explain what happens to credit spreads during economic recessions and recoveries. Why does this phenomenon occur?

2. In what ways is preferred stock like debt and in what ways is it like equity? Provide two characteristics similar to debt and three characteristics similar to equity.

3. i) Which of the four options below is the riskiest investment in terms of exposing the investor to the highest possible loss?

i. writing or short a call option

ii. writing or short a put option

iii. buying or long a call option

iv. buying or long a put option

ii) Draw the payoff diagram of the option that corresponds to the correct answer above.