Question
1. Which of the following statements about recovery rate is false? A. Recovery rates for bonds of the same credit ratings are the same/ B.
1. Which of the following statements about recovery rate is false?
A. Recovery rates for bonds of the same credit ratings are the same/
B. Recovery rates vary by industry.
C. Recovery rates vary throughout a credit/economic cycle
2. Which one of the following two credit risk measures would you expect to lead changes in the other?
A. the two are typically updated to the same frequency basis
B. Credit ratings lead changes in expected default frequency
C. Expected default frequency leads credit ratings
3. Company A has an expected default frequency of 3%. Company B has an expected default frequency of 15%. Which of the following statements is true?
A. Company B is 5 times more likely to default relative to company A.
B. Company A is 5 times more likely to default relative to company B.
C. Company B is 12 times more likely to default relative to company A.
D. The two companies are equally likely to default.
4. According to Moody's, particular bond issue for firm A has a default rate of 5%, and an expected recovery rate of 40%. What is the expected default loss rate of this issue?
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