The table below shows the market quotes of credit spreads for five-year tranches of irraxx Europe (a popular CDS index). Your bank purchased $2,000,000 worth of protection on losses in the 3-6\% range in January 2007. The CDS spread was 41.59 basis points. Which of the following statements is FALSE? a. Your annual CDS premium would be $8,138 b. If losses were less than 3%, you would receive nothing from the CDS seller c. If losses were greater than 6%, you would receive nothing from the CDS seller d. Your CDS premium would be a measure of credit risk in the economy Problem 5 One year ago, two parties entered an interest rate swap to exchange LIBOR for 4%, with a notional principal of $100 million, semiannual payments, and a tenor of 2 years. The term structure of LIBOR interest rates is flat 3.5% over the next year. Which party faces counterparty default risk now? a. The seller b. The buyer c. No party faces default risk because term structure is flat d. Not enough information is provided