- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 30. Credit Default Swaps
- Subject 3. Basics of Valuation and Pricing
CFA Practice Question
Assume a company's 10-year credit spread is 450 bps. The duration of a CDS (5% coupon) is 5 years. What is the approximate upfront premium if the notional amount of the CDS is $10 million?
B. the protection seller will pay $0.50 million to the protection buyer.
C. the protection buyer will pay $0.50 million to the protection seller.
A. the protection seller will pay $0.25 million to the protection buyer.
B. the protection seller will pay $0.50 million to the protection buyer.
C. the protection buyer will pay $0.50 million to the protection seller.
Correct Answer: A
(450 - 500)bps x 5 x 10 million = -$0.25 million.
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