Verify that if the CDS spread for the example in Tables 21.1 to 21.4 is 100 basis points and the probability of default in a year (conditional on no earlier default) must be 1.61%. How does the probability of default change when the recovery rate is 20% instead of 40%? Verify that your answer is consistent with the implied probability of default being approximately proportional to 1/(1 - R), where R is the recovery rate.

AppendixLO1