Question: In 2 0 2 3 , as a bond portfolio manager, you owned $ 1 million worth of Rite Aid bonds. Because you were concerned

In 2023, as a bond portfolio manager, you owned $1 million worth of Rite Aid bonds. Because you were concerned about the credit risk of Rite Aid, you bought $1 million worth of credit default swaps on Rite Aid. Rite Aid filed for bankruptcy in October 2023. Your CDS called for cash settlement. Suppose bondholders can recover 42 cents on the dollar on the cheapest deliverable bond. Thus, the recovery rate is 0.42. How much will you receive from the CDS seller under the cash settlement?

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