Question: 1. Assume 5-year U.S. Treasury notes yield 2.5% and the 5-year credit default swap (CDS)pricefortheUnitedStatesGovernmentastheunderlyingreferencecreditis 14.5 bps p.a. Based upon this information alone, you can

1.Assume 5-year U.S. Treasury notes yield 2.5% and the 5-year credit default swap (CDS)pricefortheUnitedStatesGovernmentastheunderlyingreferencecreditis

14.5 bps p.a. Based upon this information alone, you can conclude:

A.CDS sellers are assuming U.S. Government debt has a default probability over the next five years of.725%

B.Youcould buy this credit default protection today for less than .68% of the notionalamount

C.CDS sellers must be using these swaps on U.S. Government debt to hedge corporate debtpositions

D.CDS buyers have bid up prices on these swaps out of an abundance ofcaution

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