The default probability for the fifth year is determined by subtracting the survival probability at the end of the fifth year from the survival probability at the end of the fourth year. Using the given constant hazard rate of 2.1% per annum and the formula $e^{-\text{hazard rate} \times \text{time}}$, the survival probability to the end of the fourth year is $e^{-0.021 \times 4} = 0.9194$ and to the end of the fifth year is $e^{-0.021 \times 5} = 0.9003$. The difference between these two gives the default probability during the fifth year, which is $0.9194 - 0.9003 = 0.0191$.

Things to Remember.

• The survival probability decreases over time when the hazard rate is positive.
• The probability of default for a particular year is the gap between survival probabilities from the adjacent years.
• Calculations involving exponential terms can use a financial calculator or software for more exact results.
• User-friendly applications of these calculations in CDS valuations reflect the careful design of risk management tools and financial models.