ABC PLC is entering a four-year single name credit default swap with credit performance of DEF PLC as its underlying. Th

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ABC PLC is entering a four-year single name credit default swap
with credit performance of DEF PLC as its underlying. The annual
probability of default for DEF PLC is assessed at 2.24% and the
recovery rate is estimated at 40%.
Question 31: Assuming all defaults occur
mid-year and the annual cost of finance for ABC PLC is 6.72%,
calculate the equilibrium swap rate for the credit default swap
a) 94bps
b) 142bps
c) 140bps
d) 91bps
e) 136bps
Question 32: Identify the present value of the
net payoff for the protection seller in the swap if the par value
is $100,000, the swap rate is 155bps, and DEF PLC defaults in the
second year of the swap
a) -$52381.04
b) -$52970.61
c) -$59070.00
d) -$60000.00
e) -$52267.64
Question 33: Identify the expected net payoff
for the protection buyer in the swap if the par value is $100,000
and the swap rate is 155bps
a) -$2578.26
b) $729.58
c) -$2006.27
d) $418.87
e) -$478.09
Question 34: Identify the equilibrium swap rate
if the recovery rate increases to 60%
a) 94bps
b) 142bps
c) 140bps
d) 91bps
e) 136bps
Question 35: Identify the equilibrium swap rate
if defaults are assumed to occur at the start of the year instead
of mid-year
a) 145bps
b) 134bps
c) 137bps
d) 147bps
e) 142bps
Question 36: If the swap rate for the credit
default swap is 167bps, calculate the implied annual probability of
default for DEF PLC
a) 2.62%
b) 2.66%
c) 2.56%
d) 1.60%
e) 3.96%