1. Credit Default Swap Spreadsheet Instructions For 5 year and 10 year CDS

2. 2 The first five columns are: 1)Times to maturity 1)this sheet has cash flows semi-annually 2)LIBOR rates 3)LIBOR Discount Factor s 4)Corporate bond rates 5)Credit Risky Spread (over LIBOR) CDS PRICING: CASH FLOW DIAGRAM SETTING UP A CASH FLOW DIAGRAM CDS Pricing - Instructions

3. 3 The next two columns are: 1)Cumulative Implied Probability of Default 1)As implied by credit spread 2)Annual Probability of Default 1)Cum IPD2 – CumIPD1 SETTING UP A CASH FLOW DIAGRAM - 2 CDS Pricing - Instructions

4. 4 The next 3 columns are: 1)Cum Prob of Default w/ Recovery 2)Cum Prob of Survival w/ Recovery 3)Sum of Default w/ recov + Surv = 1.0 SETTING UP A CASH FLOW DIAGRAM - 3 CDS Pricing - Instructions

5. 5 Discount factors used to discount multiple cash flows due on same date Discount factors are the present value of one unit ($1.00) For our swap, we need annually compounded discount factors for our swap DISCOUNT FACTORS Where: r= Interest rate per annum t= time to maturity C = compounding periods CDS Pricing - Instructions SETTING UP A CASH FLOW DIAGRAM - 4

6. 6 The next three columns are RECEIVE LEG (w/ survival) 1)Present Value of Receive Leg, with survival 2)Present Value of Receive Leg, with survival – ANNUAL 3)Present Value of Receive Leg, with survival - CUMULATIVE SETTING UP A CASH FLOW DIAGRAM - 5 CDS Pricing - Instructions

7. 7 The next three columns are RECEIVE LEG (w/ default no recov) 1)Present Value of Receive Leg, with default, no recovery 2)Present Value of Receive Leg, w def.ault no recov – ANNUAL 3)Present Value of Receive Leg, w default no recov - CUM SETTING UP A CASH FLOW DIAGRAM - 6 CDS Pricing - Instructions

8. 8 The next three columns are PAY LEG – contingent upon DEFAULT (with recovery) 1)Present Value of Pay Leg, if default w recov 2)Present Value of PayLeg, if default w recov– ANNUAL 3)Present Value oPay Leg, if default w recov- CUMULATIVE SETTING UP A CASH FLOW DIAGRAM - 7 CDS Pricing - Instructions

9. 9 On top of the last three columns are: 1)Recovery rate (default = 30% - 40%) 2)Notional amount SETTING UP A CASH FLOW DIAGRAM - 8 CDS Pricing - Instructions

10. 10 The last three columns calculate the CDS premium for each period 1)CDS Premium =.in decimal 2)CDS Premium * 10,000 = BPs 3)$CDS Premium = decimal * notional SETTING UP A CASH FLOW DIAGRAM - 9 CDS Pricing - Instructions

11. This spreadsheet is for educational purposes only This is not an offer to buy or sell securities or derivatives This spreadsheet has no protected cells Cells with a red triangle in the top right hand corner include comments While we prefer you not share this spreadsheet, if you do please attribute to MH Derivatives Solutions, LLC. Contact MHDS with any questions at mccabe@mhderivativesolutions.com mccabe@mhderivativesolutions.com