CreditDerivativeProblems You own an XYZ bond that pays 2.5% for 5 years. To reduce your credit expos

CreditDerivativeProblems You own an XYZ bond that pays 2.5% for 5 years. To reduce your credit exposure you go long a CDS contract and pay 1.25% per year. You also enter into an interest rate swap at 1% versus Libor. What is your resulting net position? What can go wrong?

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