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5. Corporate bonds, issued by Midland plc, yield 4% and the risk free rate of interest is 1.5%. If the loss given default on Midland's
5. Corporate bonds, issued by Midland plc, yield 4% and the risk free rate of interest is 1.5%. If the loss given default on Midland's debt is 42%, what is its default intensity or hazard rate? a. 0.043103 b. 0.0654 c. 0.059524 d. 0.130952 e. 0.015823 6. Which of the following correctly describes a credit default swap? a. The exchange of interest exposure in one currency for interest rate exposure in another currency b. A contract that provides insurance against default by a reference entity C. An agreed exchange of repayments on corporate bonds d. A futures position to hedge foreign currency exposure e. An agreed exchange of interest payments on a notional principal 7. Which of the following best describes the gamma of an option? a. The sensitivity of option price to a change in the price of the underlying asset b. The sensitivity of option price to a change in the riskless rate of interest C. The sensitivity of option price to a change in the volatility of the underlying asset d. The time decay of the option e. The change in delta with respect to a change in the price of the underlying asset
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