Default intensities are 5 and 12 in years 1 and 2 the, Financial Management

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Default intensities are 5 and 12 in years 1 and 2 the

1. Consider a 2-year CDS with $1.00 notional principal. The present value of the expected CDS payout is $0.15. The discount rate is 5%. What is the CDS spread?

2. Consider a 2-year CDS with $1.00 notional principal and an assumed 20% recovery rate. Default intensities are 5%, and 12% in years 1 and 2. The discount rate is 5%. What is the present value of the expected CDS payout?

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