Assume that the asset value of a company follows a Black-Scholes model. Let a maturity be 3 years, the initial asset value be 100, volatility of the asset be 0.3, and the total face value of the company at the maturity be 100. Also, assume that the interest rate is 10% =0.1. Assume that the face value of the reference bond is equal to the liability of the company. Consider CDS with maturity 3 year, where its premium is paid once a year.

1.Calculate probability of default for one year, where assume it does not depend on time.

2.Calculate the premium of the CDS.