Problema 1-year credit default swap for a cisco bond is, Ask an Expert

Accounting

Problem:

A 1-year credit default swap for a Cisco bond is 1200bp (paid quarterly) for a $1 million credit exposure. If the quarterly interest rate is 1%, the probably of default is 5% each quarter, and the recovery rate in default is 30%.

Required:

Question: What is the value of this CDS?

Note: Explain all steps comprehensively.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91169825

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