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Suppose that the risk free interest rate is 3% compounded quarterly. Defaults can occur at times .25, .75, 1.25, and 1.75 years. The associated unconditional

Suppose that the risk free interest rate is 3% compounded quarterly. Defaults can occur at times .25, .75, 1.25, and 1.75 years. The associated unconditional probabilities of default are 1%, 1%, 1.5%, and 1.5% respectively. Assume the recovery rate is 20% What is the fair value of a two year credit default swap spread?

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