medium · FRM Part 2 Credit Risk
An institutional fund uses a Credit Default Swap (CDS) to hedge a reference entity. The 5-year par spread is 180 bps, and the contract trades with a fixed coupon of 100 bps. If the risky annuity (RPV01) is 4.25, calculate the approximate upfront payment required from the protection buyer.
- 3.40% of notional
- 4.25% of notional
- 7.65% of notional
- 0.80% of notional
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