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PRMIA 8010 Exam - Topic 2 Question 82 Discussion

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.
C) 3.33%
A) 0.80%
B) 5.00%
D) 2.00%

PRMIA 8010 Exam - Topic 2 Question 82 Discussion

Actual exam question for PRMIA's 8010 exam
Question #: 82
Topic #: 2
[All 8010 Questions]

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.

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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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Carmen
2 days ago
Wait, how do you even calculate that?
upvoted 0 times
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Jolanda
7 days ago
Definitely going with option D, seems right!
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Azzie
12 days ago
The CDS quote is 200 bps, that's 2.00%.
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Leonie
18 days ago
I agree with D, but I'm surprised it's not higher given the risk!
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Nohemi
23 days ago
Recovery rate of 40% makes sense, but I’m leaning towards 3.33%.
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Adelle
2 months ago
Wait, how did you get 2.00%? That seems low for a bank!
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Brianne
2 months ago
I think it's definitely option D, seems right.
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Dulce
3 months ago
The CDS quote is 200 bps, that's 2.00%.
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Pura
3 months ago
Recovery rate of 40%? That seems low for a bank.
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Luke
3 months ago
Definitely going with option D, 2.00%.
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Mitsue
3 months ago
Wait, how do you get 5.00% from that? Seems off.
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Gail
3 months ago
I think it's actually 3.33%.
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Truman
3 months ago
The CDS quote is 200 bps, that's 2.00%.
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Zoila
4 months 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
4 months 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
4 months 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
4 months 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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