Question
32-34.) You are asked to value a credit default swap on a bond with a $1,000,000 face value. In the event of default, the bond
32-34.) You are asked to value a credit default swap on a bond with a $1,000,000 face value. In the event of default, the bond is expected to have a recovery rate of 60%. The probability of default is 10%. You will be purchasing 3 years of protection. The Treasury STRIP rates are as follows: Maturity STRIP Rate 1 4% 2 6% 3 8% What is the cost of the credit default swap?
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Public Finance A Contemporary Application Of Theory To Policy
Authors: David N. Hyman
5th Edition
0030113172, 978-0030113178
