Build out a simple 1 year model to analyze a CDS contract. Contract should reflect: An annual payment from the owner of the CDS contract A recovery rate of 60% A yield on the corporate of 4% A 1-year risk free rate of 0% Calculate an implied default rate? What happens to that default rate as: 1. Corporate yield falls to 3%. Why does this make sense? 2. Risk free rate rises to 1%. Why does this make sense? 3. Recovery rate falls to 40%. Why does this make sense? Build out a simple 1 year model to analyze a CDS contract. Contract should reflect: An annual payment from the owner of the CDS contract A recovery rate of 60% A yield on the corporate of 4% A 1-year risk free rate of 0% Calculate an implied default rate? What happens to that default rate as: 1. Corporate yield falls to 3%. Why does this make sense? 2. Risk free rate rises to 1%. Why does this make sense? 3. Recovery rate falls to 40%. Why does this make sense