Firm A buys CDS from AIG. The notional amount is 1 million USD. The reference entity is firm

B. The swap premium is 3%, payable at the end of each quarter. Suppose firm B defaults on January

31. The current price of firm Bs bond is $200 (out

of $1,000

par

).

The day count convention is

act/360.

a.

What actions each party needs to do if cash settlement? For cash flows,

please write

down the numbers.

b.

What actions each party needs to do if physical settlement? For cash flows, please

write down the numbers.

Answer

:

2.

B

rian just bought an apartment in Manhattan which cost $ 2 million. The down payment was 50%

and the balance of his mortgage was $1 million. Borrowing interest rate is 5%. The term is 15 years.

a.

What is his monthly payment?

b.

How much is the interest payment for the first month?

c.

How much is the remaining principal in the end of the first month?

Answer