PRMIA 8010 Exam - Topic 2 Question 82 Discussion

Actual exam question for PRMIA's 8010 exam

Question #: 82
Topic #: 2

The CDS quote for the bonds of Bank X is 200 bps. Assuming a recovery rate of 40%, calculate the default hazard rate priced in the CDS quote.

A0.80%

B5.00%

C3.33%

D2.00%

Show Suggested Answer

Suggested Answer: C

Hazard rate x Loss given default = CDS quote. In other words, Hazard rate x (1 - recovery rate) = CDS quote. We can therefore calculate the hazard rate for this problem as 200 bps/(1 - 40%) = 3.33%.

by Jamal at Mar 06, 2026, 09:58 PM

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Mitsue

3 days ago

Wait, how do you get 5.00% from that? Seems off.

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Gail

8 days ago

I think it's actually 3.33%.

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Truman

13 days ago

The CDS quote is 200 bps, that's 2.00%.

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Zoila

18 days ago

I feel like the answer is around 2% based on what we practiced, but I can't quite remember how to derive it from the CDS spread.

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Arlette

24 days ago

I recall a similar question where we had to calculate the hazard rate, and I think it involved some logarithmic functions. I hope I remember the right steps!

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Bambi

29 days ago

I'm a bit unsure about the recovery rate's impact on the hazard rate. Does it directly affect the calculation, or is it just a factor we adjust for?

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Tamar

1 month ago

I think we need to use the formula that relates the CDS spread to the default probability and recovery rate. I remember something about that from practice questions.

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