CFA Practice Question

There are 252 practice questions for this study session.

CFA Practice Question

Assume a company's 10-year credit spread is 500 bps. The duration of a CDS (5% coupon) is 6 years. What is the approximate upfront premium if the notional amount of the CDS is $10 million?
A. The protection seller will pay $0.3 million to the protection buyer.
B. The protection buyer will pay $0.25 million to the protection seller.
C. No upfront premium is required in this transaction.
Explanation: (500 - 500)bps x 6 x 10 million = $0. Since the credit spread is exactly 5%, there is no upfront premium to be paid by either party.

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