Question
The table below shows the bid/ask quotes by UBS for CDS spreads for companies A, B, and C. CSFB has excessive credit exposure to Company
The table below shows the bid/ask quotes by UBS for CDS spreads for companies A, B, and C. CSFB has excessive credit exposure to Company C and wants to reduce it through the CDS market.
| 1 Year | 3 Year | 5 Year |
A | 15/25 | 21/32 | 27/36 |
B | 43/60 | 72/101 | 112/152 |
C | 71/84 | 93/113 | 141/170 |
Since the farthest maturity of its exposure to C is three years, CSFB buys a USD 150 million three-year protection on C from UBS. In order to make its purchase of this protection cheaper, based on its views on companies A and B, CSFB decides to sell USD 300 million five-year protection on Company A and to sell USD 100 million one-year protection on Company B to UBS. What is the net annual premium payment made by CSFB to UBS in the first year?
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