Question

Premium that the payer pays periodically in a credit default swap is also known as A....

Premium that the payer pays periodically in a credit default swap is also known as

A. Credit default spread

B. Reference entity

C. Recovery rate

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Answer #1

The correct option is A. Credit Default Spread

Reference entity: is the issuer of underlying that is considered in Credit Default Swap. The underlying can be bond. The company that issues bond is the reference entity.

Recovery Rate: It is a rate which tells the percentage of fave value that can be recovered from the bond in case of default.

Credit Default Spread: It is a specified rate that CDS seller charges from CDS buyer. That is nothing but premium. Hence, this is the correct option.

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