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A bank is interested in entering into a negative basis trade on a CDO. The CDO tranche yields LIBOR plus 50 bps. The bank can borrow at LIBOR plus 10 bps and lend at LIBOR plus 40 bps. A CDS on the CDO tranche is available at 20 bps. If the bank enters into the negative basis trade, it will most likely earn: A. 40 bps. B. 10 bps. C. −10 bps. D. 20 bps. |