How is the recovery rate of a bond usually defined What is t

How is the recovery rate of a bond usually defined? What is the formula relating the payoff on a CDS to the notional principal and the recovery rate?

**Can you please explain step by step on how to do this question*** and please show formulas used so I can understand how to do it on my own. thank you.

Solution

The Recovery rate of a bond is usually defined as the value of the bond a few days after a default occurs as a percentage of the bond \'s face value.

The payoff on a CDS is L X ( 1-R ) where L is the notional Principal and R is the recovery rate.