Question #13
Reading: Reading 29 Credit Default Swaps
PDF File: Reading 29 Credit Default Swaps.pdf
Page: 5
Status: Correct
Correct Answer: B
Question
Credit default swap (CDS) fixed payments are most likely to:
Answer Choices:
A. be made until the maturity of the CDS whether a credit event occurs or not
B. be set at 1% for investment-grade debt and 5% for high-yield debt
C. be made by the protection seller to the protection buyer
Explanation
CDS fixed payments are customarily set at a fixed annual rate of 1% for investment-grade
debt or 5% for high-yield debt. Fixed payments are made by the CDS buyer to the CDS
seller. The protection buyer is obligated to make regular payments until maturity of the
CDS or until default (whichever occurs first).