Calculate the total amount paid by the protection seller

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Question - A credit default swap requires a semiannual payment at the rate of 44.6 basis points per year. The principal is $139.8 million and the credit default swap is settled in cash. A default occurs after three years and four months, and the calculation agent estimates that the price of the cheapest deliverable bond is 20.7% of its face value shortly after the default. Calculate the total amount paid by the protection seller upon default given the information provided above?

a. The protection seller $ 129066.16 upon default.

b. None of the other answers provided gives the amount that the protection seller should pay upon default.

c. The CDS acts like an insurance, hence the protection seller pays the full principal amount of $ 139.8 million upon default

d. The CDS acts like an insurance, hence the protection seller pays the full principal amount of $ 139.8 million and accumulated interest until default date.

e. The protection seller pays $ 494441.84 upon default.

Reference no: EM133018356

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