Consider that the probability of a reference entity defaulting during a year conditional on no earlier defaults to be 2%; assume that defaults always happen halfway through a year; payments made on a CDS are made once a year, at the end of the year; assume the risk-free rate is 5% with continuous compounding and the recovery rate is 40%. We will value a new credit default swap. We are buying protection on an entity. CDS is 3-years. What is the total PV of the expected payment from year 1 to year 3?

A. 2.5363s

B. 2.6452s

C. 2.3312s

D. 2.6113s