Consider a CDS on Lehman Brothers default event. Given today's market conditions you know that the present value of expected premium payments 6.0250*s, the present value of expected accrual payments is 0.0515*s and the present value of expected payoff is 0.1398. All measured per $1 of notional principal. You also know that Argo hedge fund bought this CDS on Lehman Brothers default from AIG one week ago with contractual rate of X basis points per year. Given this information the breakeven spread (i.e. the value of s) is and today's value of the CDS contract to AIG is negative if the value of s is than X. a. 230 basis points; greater b. 43 basis points; smaller c. 234 basis points; greater d. 230 basis points; smaller e. 43 basis points, greater I

Consider a CDS on Lehman Brothers default event. Given today's market conditions you know that the present value of expected premium payments 6.0250s, the present value of expected accrual payments is 0.0515s and the present value of expected payoff is 0.1398. All measured per $1 of notional principal. You also know that Argo hedge fund bought this CDS on Lehman Brothers default from AIG one week ago with contractual rate of X basis points per year. Given this information the breakeven spread (i.e. the value of s) is and today's value of the CDS contract to AIG is negative if the value of s is than X. a. 230 basis points; greater b. 43 basis points; smaller c. 234 basis points; greater d. 230 basis points; smaller e. 43 basis points, greater I

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 9P

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