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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Francisca

22 hours ago

I’m leaning towards option C, 3.33%. It seems reasonable with the recovery rate.

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Glory

6 days ago

I feel like it's a bit straightforward if you know the formula.

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Trinidad

11 days ago

This question is tricky! I think it's about understanding the CDS pricing.

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Julie

16 days ago

I’m not so sure. I might go with option D, 2.00%. It feels safer to me.

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Loren

22 days ago

I agree with Nakita. 3.33% seems reasonable given the recovery rate.

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Nakita

27 days ago

Yeah, I feel like the recovery rate plays a big role here. I'm leaning towards option C.

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Kiera

1 month ago

This question is tricky! I think it's about understanding the relationship between CDS and default rates.

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Gerald

1 month ago

I thought it would be lower, but D makes sense.

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German

1 month ago

5.00% seems way too high for a recovery rate of 40%.

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Carmen

2 months ago

Wait, how do you even calculate that?

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Jolanda

2 months ago

Definitely going with option D, seems right!

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Azzie

2 months ago

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

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Leonie

2 months ago

I agree with D, but I'm surprised it's not higher given the risk!

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Nohemi

2 months ago

Recovery rate of 40% makes sense, but I’m leaning towards 3.33%.

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Adelle

4 months ago

Wait, how did you get 2.00%? That seems low for a bank!

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Brianne

4 months ago

I think it's definitely option D, seems right.

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Dulce

4 months ago

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

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Pura

4 months ago

Recovery rate of 40%? That seems low for a bank.

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Luke

4 months ago

Definitely going with option D, 2.00%.

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Mitsue

5 months ago

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

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Gail

5 months ago

I think it's actually 3.33%.

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Truman

5 months ago

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

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Zoila

5 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

5 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

6 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

6 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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