Quest : It is most accurate to state that the upfront payment associated with a credit default swap (CDS) is:
greater when the reference obligation is high-yield debt rather than investment-grade debt.
sometimes made by the credit protection seller to the credit protection buyer.
always zero due to the way CDS are priced at origination.
I know statement 2 is correct but wanted to know why statement 1 is wrong?
If the Ref Obligation is high yield, the credit spread would be greater than investment grade which would increase the upfront payment right?
Answer on the Kaplan test series says 1 is not true