medium · FRM Part 1 Valuation and Risk Models
A 5-year Credit Default Swap (CDS) references a firm with an annual default probability (PD) of 1.5% and an expected recovery rate of 40%.
Using a simple 'credit-triangle' approximation, what is the fair annual CDS spread in basis points?
- 110 bps
- 90 bps
- 150 bps
- 60 bps
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