FRM二级模拟真题精选:What is the estimate for the CDS spread?

A risk analyst is valuing a 1-year credit default swap(CDS)contract that will pay the buyer 80%of the face value of a bond issued by a corporation immediately after a default by the corporation.To purchase this CDS,the buyer will pay the CDS spread,which is a percentage of the face value,once at the end of the year.The analyst estimates that the risk-neutral default probability for the corporation is 7%per year.The risk-free rate is 2.5%per year.Assuming defaults can only occur halfway through the year and that the accrued premium is paid immediately after a default,what is the estimate for the CDS spread?
 
A.560 basis points
 
B.570 basis points
 
C.580 basis points
 
D.590 basis points

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