In a CDS contract that will last five years, what happens if there is a default during the first year?

Select one:

a. There is an accrual payment to the CDS seller

b. There is a payoff to the CDS buyer (from the seller) and an accrual payment to the CDS seller (from the buyer)

c. The contract ceases to exist without any payment

d. There is a payoff to the CDS buyer

Expert Solution

In a CDS, the buyer of the swap makes payments to the swap's seller until the maturity date of a contract. In return, the seller agrees that – in the event that the debt issuer(borrower) defaults or experiences another credit event – the seller will pay the buyer the security's value as well as all interest payments that would have been paid between that time and the security's maturity date.

.

In a CDS contract that will last five years, if there is a default during the first year ,then there is a payoff to the CDS buyer.

.

Therefore , the correct option is Option-d. There is a payoff to the CDS buyer

jeff jeffy answered 2 years ago

The profits of a firm for the last five years were as follows. Year...

The profits of a firm for the last five years were as follows. Year Profit (OMR) 2015 10,000 2016 20,000 2017 30,000 2018 20,000 2019 18,000 Calculate the value of goodwill on the basis of four years’ purchase of weighted average profits based on weights 1,2,3,4 and 5 respectively to the profits for 2015, 2016, 2017, 2018 and 2019. (3 marks) Write any six need for valuation of goodwill (2 marks)

Contrast what happens during slow wave sleep with what happens during REM sleep. What happens to...

Contrast what happens during slow wave sleep with what happens during REM sleep. What happens to the stress response during sleep? How/why does stress disrupt sleep?

The yield on a default-free four-year zero-coupon bond is 3%; the yield on a default-free five-year...

The yield on a default-free four-year zero-coupon bond is 3%; the yield on a default-free five-year zero-coupon bond is 4.5%. The bonds have a face value of $1000 and are traded in an open market. You are a money manager and know that you will have a net inflow of $100,000 four years from now, and an obligation (i.e. a net outflow) of $100,000 one year later (i.e. five years from now). Once you get your inflow, you plan to...

What is a credit default swap (CDS)? What “credit events” might trigger a payout? Explain how...

What is a credit default swap (CDS)? What “credit events” might trigger a payout? Explain how the CDS market influenced the crisis of 2007-2009.

What happens during glycolysis?

What happens if a credit event triggers a CDS settlement assuming a cash settlement? The seller...

What happens if a credit event triggers a CDS settlement assuming a cash settlement? The seller of protection must provide the buyer of protection loans or bonds of the underlying credit. The seller of protection receives stock of the underlying reference entity, but is forced to pay the buyer of protection the strike price. The buyer of protection receives the difference between the full face value and current value of the reference entities obligations arrived at through an auction process....

Which has done more to shape history during the last five hundred years Empires or Revolutions?...

Which has done more to shape history during the last five hundred years Empires or Revolutions? Why?

An investor expects to receive $2,000 each year for the next five years, with the first...

An investor expects to receive $2,000 each year for the next five years, with the first payment beginning at the end of the year. What is the present value of the these payments if the interest rate is expected to be 5% for years 1-3 and 8% thereafter?

During the last five months of the year, Dwana opens a new internet telecommunications business called...

During the last five months of the year, Dwana opens a new internet telecommunications business called Dwan-Com. Dwan-Com bills $50,000 of revenues, but receives only $40,000 cash. Dwan-Com incurs $3,000 of supply expenses, and $41,000 of labor costs. Dwan-Com pays for $2,200 of the supplies and $38,000 of the labor costs in the current year. a. Under the cash method, Dwan-Com has a net of $. b. Dwan-Com's taxable income under the accrual method is $. c. What method of...

What happens during Meiosis I

Question