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1. Assume that the following yield curve is observed yo,i = 3%, yo,2 = 3.29695%, 40,3 3.6297%, and 40,4 = 4%. 2. You enter into a credit default swap as the protection seller to insure ANZ Bank against default on a large fixed interest loan it has made with BHP. The loan ANZ Bank has with BHP is for $100 million over 3 years at a fixed rate of 7% with annual loan payments. You insure ANZ for 75% of the loss given default. The probability of default is constant at 15% and the recovery rate is constant at 80%. The notional principal is the loan amount. Use the first 3 years of the zero coupon bond yield curve from question 1. Questions: (i) Calculate the annual payments BHP is required to make with ANZ. (ii) If the swap rate is 1% then what is the swap value? Drawing a table like in the lecture notes will help. 1. Assume that the following yield curve is observed yo,i = 3%, yo,2 = 3.29695%, 40,3 3.6297%, and 40,4 = 4%. 2. You enter into a credit default swap as the protection seller to insure ANZ Bank against default on a large fixed interest loan it has made with BHP. The loan ANZ Bank has with BHP is for $100 million over 3 years at a fixed rate of 7% with annual loan payments. You insure ANZ for 75% of the loss given default. The probability of default is constant at 15% and the recovery rate is constant at 80%. The notional principal is the loan amount. Use the first 3 years of the zero coupon bond yield curve from question 1. Questions: (i) Calculate the annual payments BHP is required to make with ANZ. (ii) If the swap rate is 1% then what is the swap value? Drawing a table like in the lecture notes will help