Q 1. ANZ Bank enters into a credit default swap as the protection buyer to insure the bank against default on a large fixed interest loan it has made with BHP. The loan ANZ Bank has with BHP is for $100 million over 3 years at a fixed rate of 7% with annual loan payments. ANZ is insured for 75% of the loss given default. The yearly probability of default is constant at 15% and the yearly recovery rate is constant at 80%. The notional principal is the loan amount. Assume that the following yield spot curve is observed: 40,1 = 3%, 40,2 = 3.297%, and 40,3 3.630%, and the swap rate is 1%. Find the credit default swap value. [8 marks] Q 1. ANZ Bank enters into a credit default swap as the protection buyer to insure the bank against default on a large fixed interest loan it has made with BHP. The loan ANZ Bank has with BHP is for $100 million over 3 years at a fixed rate of 7% with annual loan payments. ANZ is insured for 75% of the loss given default. The yearly probability of default is constant at 15% and the yearly recovery rate is constant at 80%. The notional principal is the loan amount. Assume that the following yield spot curve is observed: 40,1 = 3%, 40,2 = 3.297%, and 40,3 3.630%, and the swap rate is 1%. Find the credit default swap value. [8 marks]