# Options Futures Study Set 1

## Quiz 24 :Credit Risk Looking for Finance Homework Help?

## Quiz 24 :Credit Risk Suppose that the cumulative probability of a company defaulting by years one,two,three and four are 3%,6.5%,10%,and 14.5%,respectively.What is the probability of default in the fourth year conditional on no earlier default?
Free
Multiple Choice

B
The unconditional PD for the fourth year is 14.5% minus 10% or 4.5%.The probability of no earlier default is 90%.The PD conditional on no earlier default is therefore 0.045/0.9=0.05 or 5% Which of the following is usually used to define the recovery rate of a bond?
Free
Multiple Choice

A
The recovery rate for a bond is usually defined as the value of the bond immediately after a default as a percent of its face value.This is in spite of the fact that the bond holder's claim in the event of a default in many jurisdictions is the face value plus accrued interest. Which of the following is true?
Free
Multiple Choice

B
Risk neutral default probabilities are usually greater than real world default probabilities. A hazard rate is 1% per annum.What is the probability of a default during the first two years?
Multiple Choice Which of the following is true
Multiple Choice Which of the following is true
Multiple Choice If a company's five year credit spread is 200 basis points and the recovery rate in the event of a default is estimated to be 20% what is the average hazard rate per year over the five years
Multiple Choice Which of the following is true
Multiple Choice Which of the following is true
Multiple Choice To be investment grade,a company has to have a credit rating of
Multiple Choice In the Gaussian copula model which of the following is true
Multiple Choice Which of the following is true
Multiple Choice Which of the following is true
Multiple Choice Which of the following is true of Merton's model:
Multiple Choice Which of the following is true of Merton's model:
Multiple Choice Which of the following is true
Multiple Choice A derivatives dealer has a single transaction with a company which is a long position in a five-year option.The Black-Scholes-Merton value of the option is \$6.Suppose that the credit spread on five-year bonds issued by the company is 100 basis points.What is the dealer's CVA per option purchased from the counterparty?
Multiple Choice   