Is below correct?
“When the economy has been faltering and may be going into recession, it is typically a good time to invest in distressed securities.”
The statement is correct. When the economy is in a downturn, there are more bankruptcies, thereby increasing the supply of distressed securities at relatively low (or falling) prices.
Above is EOC solution.
With distressed securities you benefit from:
- Information mismatch (not everyone knows how to deal with distressed securities)
- Taking long positions in higher seniority issues, while short-selling lower seniority issues
now you know how to deal with distressed securitites
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