Suppose that the risk-free zero curve is flat at 7% per annum with continuous compounding and that

Question:

Suppose that the risk-free zero curve is flat at 7% per annum with continuous and that defaults can occur half way through each year in a new five-year credit default swap. Suppose that the recovery rate is 30% and the default probabilities each year conditional on no earlier default is 3% Estimate the credit default swap spread? Assume payments are made annually. Compounding
Compounding is the process in which an asset's earnings, from either capital gains or interest, are reinvested to generate additional earnings over time. This growth, calculated using exponential functions, occurs because the investment will...