medium · Principles of Finance valuation
A Credit Default Swap (CDS) par spread can be approximated using the annual default probability (λ) and the expected recovery rate (R).
If an analyst estimates a 4% annual hazard rate for a B-rated bond and expects a 40% recovery in the event of default, what is the approximate annual CDS spread in basis points?
- 400 bps
- 240 bps
- 160 bps
- 600 bps
Sign up free to see the explanation and track your rank →
More Principles of Finance valuation practice
- What is its Modified Duration?
- What is its current market price?
- If the current market interest rate for similar bonds is 6%, how will the bond be priced i
- If the market yield to maturity (YTM) suddenly increases to 5.5%, what will happen to the
- If the stock price is 35 at expiration, what is the net profit?
- If the current market yield for similar risk bonds is 8%, the bond will trade at:
- What is the current market price of the bond?
- If the bond is currently trading at $920, what is its current yield?