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ABC Bank enters into a credit default swap with XYZ Financial. The notional amount of the swap is ...

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ABC Bank enters into a credit default swap with XYZ Financial. The notional amount of the swap is ...

ABC Bank enters into a credit default swap with XYZ Financial. The notional amount of the swap is $50 million. The 5-year swap is based upon a 5-year loan to LMN Corp. The size of the protection payment is 3% per year. As LMN bankrupts during the time this swap is still valid, XYZ has paid ABC $22.5 million for settlements. What is the recovery ratio on the underlying loan?

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60%

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55%

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45%

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40%

Textbook

Financial Management: Theory and Practice

Edition: 4^th

Authors: Brigham, Ehrhardt, Gessaroli, Nason

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arunasingh5 Author

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Correct

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