Please refer to the spreadsheet titled Ch18_CDS_Valuation.xlsm. Assume the following: Recovery rate = 40% Notional = $1,000,000 4 quarters = Dec to March, March to June, June to September and September to December. Zero price = Use the zero prices below

QTR Zero price (Term-Structure) 0 1 3 0.997381873 6 0.994435856 9 0.991251461 12 0.987720361 Survival probability

QTR Survival Probability 0 100% 1 98% 2 95% 3 91% 4 85% Compute the CDS spread.

2. Given the above probability structure, what is the probability of a default in QTR 3 if not default has earlier? What is the estimated probability a default occurrence in QTR 3 independent of the history?