In Table 10–7, the cumulative default probability over three years for CCC-rated corporate bonds is 33.75 percent.Check this calculation using the individual year MMRs.

Transcribed Image Text:

TABLE 10-7 Mortality Rates by Original Rating-All Rated* Corporate Bonds Source: E. L. Altman, "Credit Cycle Outlook and the Altman Z-Score Models After 50 Years," NYU School of Business, June 2018. Years after Issuance 1 2 3 4 5 6 7 8 9 10 AAA Marginal 0.00% 0.00% 0.00% 0.00% 0.01% 0.02% 0.01% 0.00% 0.00% 0.00% Cumulative 0.00 0.00 0.00 0.00 0.01 0.03 0.04 0.04 0.04 0.04 AA Marginal 0.00 0.00 0.19 0.05 0.02 0.01 0.01 0.01 0.01 0.01 Cumulative 0.00 0.00 0.19 0.24 0.26 0.27 0.28 0.29 0.30 0.31 A Marginal 0.01 0.03 0.10 0.11 0.08 0.04 0.02 0.23 0.06 0.03 Cumulative 0.01 0.04 0.14 0.25 0.33 0.37 0.39 0.62 0.68 0.71 BBB Marginal 0.31 2.34 1.23 0.97 0.48 0.21 0.24 0.15 0.16 0.32 Cumulative 0.31 2.64 3.84 4.77 5.23 5.43 5.66 5.80 5.95 6.25 BB Marginal 0.91 2.03 3.83 1.96 2.40 1.54 1.43 1.08 1.40 3.09 Cumulative 0.91 2.92 6.64 8.47 10.67 12.04 13.30 14.24 15.44 18.05 B Marginal 2.85 7.65 7.72 7.74 5.72 4.45 3.60 2.04 1.71 0.73 Cumulative 2.85 10.28 17.21 23.62 27.99 31.19 33.67 CCC Marginal 8.09 12.40 17.71 16.22 4.88 Cumulative 8.09 19.49 33.75 44.49 47.20 11.60 5.39 53.33 55.84 35.02 36.13 4.73 57.93 36.60 0.62 4.23 58.19 59.96