Consider a 3 year CDS on a single reference entity. The hazard rates are 3% per annum, 3.5% per annum, and 3.75% per annum for years: 1, 2, and 3 respectively. The recovery rate is 20% and spread payments are quarterly. The risk-free rate is 3% per annum for all maturities quoted with continuous compounding. Any default is assumed to occur at the midpoint between quarters. a) Calculate the CDS spread in basis points. b) Calculate the mark-to-market gain or loss for the protection seller if the third- year hazard rate decreased from 3.75% to 3% per annum. Assume a notional amount of $1 million. c) Describe what trading strategy a speculator could use to profit from an expected increase in the reference entity's recovery rate. Consider a 3 year CDS on a single reference entity. The hazard rates are 3% per annum, 3.5% per annum, and 3.75% per annum for years: 1, 2, and 3 respectively. The recovery rate is 20% and spread payments are quarterly. The risk-free rate is 3% per annum for all maturities quoted with continuous compounding. Any default is assumed to occur at the midpoint between quarters. a) Calculate the CDS spread in basis points. b) Calculate the mark-to-market gain or loss for the protection seller if the third- year hazard rate decreased from 3.75% to 3% per annum. Assume a notional amount of $1 million. c) Describe what trading strategy a speculator could use to profit from an expected increase in the reference entity's recovery rate