An active portfolio manager seeking to purchase single-name CDS protection observes a 1.75% 10-year market credit spread
Question:
An active portfolio manager seeking to purchase single-name CDS protection observes a 1.75% 10-year market credit spread for a private investment-grade issuer. The effective spread duration is 8.75 and CDS basis is close to zero.
What should the protection buyer expect to pay or receive to enter a new 10-year CDS contract?
A. The buyer should receive approximately 6.5625% of the notional.
B. The buyer should pay approximately 15.3125% of the notional.
C. The buyer should pay approximately 6.5625% of the notional.
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