Suppose an Investor Wishes to Sell Protection on $10 Million

Suppose an investor wishes to sell protection on $10 million of the CDX Index where the fixed spread is 100 bps.If the current spread on the index is 150 bps,then the investor will receive

A) The risky present value of 150 bps taken over the life of the contract as an upfront payment at inception.
B) The risky present value of 50 bps taken over the life of the contract as an upfront payment at inception plus a running quarterly premium of $25,000.
C) The risky present value of 50 bps taken over the life of the contract as an upfront premium at inception plus a running quarterly premium of $100,000.
D) The risky present value of 50 bps taken over the life of the contract as an upfront payment at inception plus a running quarterly premium of $150,000.

Correct Answer:

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