Consider the following 1-year Credit Default Swap: The probability of a default during any given year (conditional on no default during previous years) is 3%, so the CDP = 3%

Consider the following 1-year Credit Default Swap: The probability of a default during any given year (conditional on no default during previous years) is 3%, so the CDP = 3%. The risk-free rate (LIBOR) is 5% per year The recovery rate is R = 30% CDS buyer gets 70% of face value if a default occurs. What is the present value of the expected premium from this CDS?

A) .9700s

B) .9509s

C) .9238s

D) none of the above

5. Referring to question 4 above. What is the present value of the expected payout from this CDS?

A) .0300

B) .0185

C) .0200

D) none of the above