Risk management

Gold Plc is a British gold mining company with a GBP1 billion bond in issue and a maturity date of 31 May 2032. The company has some activity in Russia, but most of the extraction happens outside of Russia. There is an active market for CDSs in Gold Plc bonds.

You own GBP1 million of Gold Plc bonds. You obtain a quote for 5-year cash settled CDS with a premium of 80 bp per annum paid semi-annually. Calculate the cash flows under this CDS if a default occurred after 1 year and 5 months and the auction-determined recovery rate is 30%.