Q2: Credit Default Swap Year 1 2 3 Hazard 2.0% 2.1% 2.2% 2.3% 4 5 2.4% 6 7 8 9 10 2.5% 2.6% 2.7% 2.8% 2.9% 4 Q2: Credit Default Swap Table on previous page shows term structure of (annual) hazard rates for reference entity Default can only occur at end of year Recovery rate of 25% Risk-free rate is 2% p.a. Calculate annual par premium (rate) Calculate upfront payment (rate) for annual CDS coupon of 100 basis points Q2: Credit Default Swap Year 1 2 3 Hazard 2.0% 2.1% 2.2% 2.3% 4 5 2.4% 6 7 8 9 10 2.5% 2.6% 2.7% 2.8% 2.9% 4 Q2: Credit Default Swap Table on previous page shows term structure of (annual) hazard rates for reference entity Default can only occur at end of year Recovery rate of 25% Risk-free rate is 2% p.a. Calculate annual par premium (rate) Calculate upfront payment (rate) for annual CDS coupon of 100 basis points