1. Suppose you purchase a credit default swap from Goldman Sachs at a cost of 60 basis points per annum on a notional value of $500 million, equal to the underlying bond portfolio you are looking to protect. Exactly one year into the first year, a covered credit event occurs. An auction determines your bond portfolio to be worth $50 for every $100 of principle. What is the next results to the swap dealer as a result of this arrangement?

   1. $250 million loss

   2. $247 million loss

   3. $253 million loss

   4. $220 million loss