ABC IncHas a Risk-Neutral Probability of Default of 5% Over Every

Multiple Choice

ABC Inc.has a risk-neutral probability of default of 5% over every half-year period.The loss-given-default (LGD) is 75% of the face value of the debt in ABC Inc.If the risk-free interest rate for one year is 10% on a semiannual compounding basis,find the fair spread for a one-year maturity,semiannual pay CDS contract.Assume that the spread is paid at the beginning of each half-year,while default,if it occurs,occurs at the end of each semiannual period.

A) 228 bps
B) 357 bps
C) 428 bps
D) 551 bps