A financial institution buys a $1 million bond issued by a large manufacturing company. The financial institution wants to protect itself from credit risk and pays a counterparty $1,000 annually in return for a promise from the counterparty to pay the financial institution the cash value of the loss from the credit event. As it turns out, trouble in the manufacturing industry causes a credit rating agency to lower the rating of the bonds after two years. As a result, the market value of the bonds falls by $12,000, and the financial institution decides to exercise its CDS on the bonds. In this case, how much is the the notional principal, or notional amount, of the derivative contract?

a. $2,000

b. $10,000

c. $12,000

d. $1,000,000