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Credit default swap premium

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Explain what is meant by a 5-year credit default swap (CDS) premium on Company XYZ and what a CDS premium of 300 basis points on its debt would mean assuming the face value of the contract is $10 million and payments on the contract are made quarterly. Discuss what is likely to happen to the credit default swap premium, if there is news that Company XYZ is in severe financial problems.

Reference no: EM133116458

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