Suppose that the risk-free zero curve is flat at 4.0% per annum with continuous compounding and that defaults can occur at times 0.25 years, 0.75 years, 1.25 years, and 1.75 years in a two-year plain vanilla credit default swap with semiannual payments. Suppose further that the recovery rate is constant at 30% and the unconditional probabilities of default (as seen at time zero) are 1.75% at time 0.25 years, 2.00% at time 0.75 years, 2.25% at time 1.25 years, and 2.60% at time 1.75 years.

(a) Model this CDS and calculate the required credit default swap spread.

(b) What would the calculated credit default spread be if the instrument was a binary credit default swap instead?