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Calculate the total amount paid by the protection buyer

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Question - A credit default swap requires a semiannual payment at the rate of 4.9 basis points per year. The principal is $4.2 million and the credit default swap is settled in cash. A default occurs after three years and three months, and the calculation agent estimates that the price of the cheapest deliverable bond is 30% of its face value shortly after the default. Calculate the total amount paid by the protection buyer given the information provided above?

a. Protection buyer pays: $6174

b. Protection buyer pays: $1029

c. None of the other answers provided is correct

d. Protection buyer pays: $6688

Reference no: EM133018360

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