(CREDIT DEFAULT SWAPS): You just invested $ 2 million dollars on a fixed income security that yields 4.5% per annum. According to Moodys and Standard and Poors, the probability of default for this security is 3% and has a recovery ratio of 2/3.

Question 11: What is your loss given default (L.G.D)?

1. 0.333 million b) 0.6667 million c) 1 million d) .3 million e) other

Question 12: What is your expected loss?

1. $10,000 b)13,300 c) 20,000 d) 32,000 e) other

Question 13: Would you buy a credit default swap (CDS) for this security priced at $17,200?

1. Yes b. No

Question 14: If you are the seller of the CDS, how would you price it?

1. P_CDS> $20,000 b) $ 32,000 > P_CDS > 6,670 c) 6,670 >P_CDS > 3,000 d) P_CDS>3,000