Question 7 0) Explain what is meant by a 5-year credit debt swap (CDS) premium on Company XYZ and what a CDS premium of 300 basis points on its debt would mean assuming the face value of the contract is $10 million and payments on the contract are made quarterly. Discuss what is likely to happen to the credit default swap premium, if there is news that Company XY Z is in severe financial problems. (5 marks) (iii) Explain what is meant by a collateralized debt obligation (CDO) if the CDC is based on and underlying package of $300 million of home loans yielding 8% interest and the CDC is split into four tranches. An equity tranche ($30 million), a junior tranche ($90 million), mezzanine tranche ($90 million) and a senior tranche ($90miillion). Comment on any credit rating of each tranche and apply an applicable rate of interest to each tranche you wish to apply to each of the 4 tranches