Consider this 5-year CDS. Assume payments are made annually in arrears. Assume that default, if it happens, always happens exactly halfway through a year. Assume that the expected recovery rate is 42%. Assume that the Treasury-Spot curve is flat at 3% with continuous compounding. The Hazard rate for the reference entity is 22.35% each year. Assume Notional Principal = $102,000,000. What is the present value of the expected premium payment in year 4 expressed in terms of s?
Consider this 5-year CDS. Assume payments are made annually in arrears. Assume that default, if it happens, always happens exactly halfway through a year. Assume that the expected recovery rate is 42%. Assume that the Treasury-Spot curve is flat at 3% with continuous compounding. The Hazard rate for the reference entity is 22.35% each year. Assume Notional Principal = $102,000,000. What is the present value of the expected premium payment in year 4 expressed in terms of s?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Consider this 5-year CDS. Assume payments are made annually in arrears. Assume that default, if it happens, always happens exactly halfway through a year. Assume that the expected recovery rate is 42%. Assume that the Treasury-Spot curve is flat at 3% with continuous compounding. The Hazard rate for the reference entity is 22.35% each year. Assume Notional Principal = $102,000,000. What is the
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