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
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