A risk analyst is valuing a 1-year credit default swap(CDS)contract that will pay the buyer 80%of the face value of a bond issued by a corporation immediately after a default by the corporation.To purchase this CDS,the buyer will pay the CDS spread,which is a percentage of the face value,once at the end of the year.The analyst estimates that the risk-neutral default probability for the corporation is 7%per year.The risk-free rate is 2.5%per year.Assuming defaults can only occur halfway through the year and that the accrued premium is paid immediately after a default,what is the estimate for the CDS spread?
A.560 basis points
B.570 basis points
C.580 basis points
D.590 basis points
自己思考，尝试练习！如需答案可申请加入QQ群：329188470，寻求帮助！
