Probability of default in a year

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Verify that if the CDS spread for the example in Tables 23.2 to 23.5 is 100 basis points and the probability of default in a year (conditional on no earlier default) must be 1.61%. How does the probability of default change when the recovery rate is 20% instead of 40%. Verify that your answer is consistent with the implied probability of default being approximately proportional to 1/((1 -R) where R is the recovery rate.

Reference no: EM132456232

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