Suppose that a company defaults always

happen halfway through a year and that

payments on its credit default swap

(CDS) are made once a year, at the end of

each year. Suppose that the risk-free rate

is 4% per annum with continuous

compounding, the recovery rate is 40%

and the default probability of the

company in the CDS is 4% in any year

conditional on no earlier default. Whatis

the credit default swap spread in a two-

year swap in basis points? Select one:

a.297

b.214

c.357

d.250