ABC Inc.has a risk-neutral probability of default of 5% over every half-year period.The loss-given-default (LGD)is 75% of the face value of the debt in ABC Inc.If the risk-free interest rate for one year is 10% on a semiannual compounding basis,find the fair spread for a one-year maturity,semiannual pay CDS contract.Assume that the spread is paid at the beginning of each half-year,while default,if it occurs,occurs at the end of each semiannual period.
A)228 bps
B)357 bps
C)428 bps
D)551 bps

Question

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The Answer of ABC Inc.has a risk-neutral probability of default of 5% over every half-year period.The loss-given-default (LGD)is 75% of the face value of the debt in ABC Inc.If the risk-free interest rate for one year is 10% on a semiannual compounding basis,find the fair spread for a one-year maturity,semiannual pay CDS contract.Assume that the spread is paid at the beginning of each half-year,while default,if it occurs,occurs at the end of each semiannual period.
A)228 bps
B)357 bps
C)428 bps
D)551 bps

ABC IncHas a Risk-Neutral Probability of Default of 5% Over Every