[ 2009 FRM Sample Exam ] Quantitative Analysis Q25 matrix, transition, following, default

lalamei

 

25. Given the following ratings transition matrix, calculate the two-period cumulative probability of default for a 'B' credit.

 

 

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A. 2.0%

B. 2.5%

C. 4.0%

D. 4.5%

[此贴子已经被作者于2009-6-13 11:11:13编辑过]

lalamei

 

Correct answer is Dfficeffice" />

The first period probability of default for a B-rated bond is 2%.  In second period the probability of default is the probability of surviving year 1 and defaulting in year 2.

The year 2 probability of default = (0.03 * 0.00) + (0.90 * 0.02) + (0.05*0.14) = 2.5%.

Therefore, the two-period cumulative probability of default = 2% + 2.5% = 4.5%.

lumi

谢谢

wuna

非常感谢

vory

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alexbao

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