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A five-year credit default swap requires quarterly payments at the rate of 60 basis points per year. The principal is $300 million and the credit
A five-year credit default swap requires quarterly payments at the rate of 60 basis points per year. The principal is $300 million and the credit default swap is settled in cash. A default occurs after four years and two months, and the price of the cheapest deliverable bond is estimated as 40% of its face value. List the cash flows and their timing for the seller of the credit default swap.
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