PV of CDs Costs per $l of 2.8 Notional Principal If default event occurs at t<T cost is 1-[1+A(t)R]=1-R-A(t)R Expected cost is ∑[1-R-4(4)Rp() Options, Futures, and other Derivatives, 5th edition 2002 by John C. HullOptions, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull PV of CDS Costs per $1 of 27.8 Notional Principal • If default event occurs at t < T cost is • Expected cost is A t R R A t R ˆ ( ) ˆ ] 1 ˆ 1−[1+ ( ) = − − ] ( ) ˆ ( ) ˆ [1 1 i i n i i  R A t R p v t = − −