Question: Consider a 2-year CDS. Assume the conditional default probability is 7% in year 1 and 12% in year 2. Calculate the equilibriumCDS Spread. Assume a

Consider a 2-year CDS. Assume the conditional default probability is 7% in year 1 and 12% in year 2. Calculate the equilibriumCDS Spread. Assume a 4% riskfree rate and 20% recovery given default.

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