1.

If the present value of an expected stream of CDS payments given a bonds default and survival probabilities is .0826 and the present value of the stream of payments with no defaults based on earning the spread (S) over the life of the contract 3.8002(S), then the CDS spread (S) which makes the two values equal should be approximately ___? Hint: See EOC problem 25.8.

317 b.p.

217 b.p.

0 b.p.

417 b.p.

2.

Which of the following is true about investment grade debt?

The default probability per year for a company always decreases as we look further ahead.

The default probability per year is roughly constant for most companies.

Sometimes A is true and sometimes B is true.

The default probability per year for a company always increases as we look further ahead.

3.

A company can invest funds for five years at LIBOR minus 10 basis points. The five-year swap rate is 3%. What fixed rate of interest can the company earn by using the swap?

		2.9%
		2.7%
		3.1%
		2.4%