$100 and coupon rate of 4%, issued by Obligor #1; Bond 2 is a B-rated 4-year Senior Subordinated bond with face value $100 and coupon rate of 2%, issued by Obligor #2. The coupon frequencies of both bonds are once per year. The one-year joint migration probabilities of these two bonds (two obligors) are estimated as in Table 1. The current one-year forward zero curves are given as in Table 2. The recovery rate is estimated as in Table 3. What is the 1-year 99.5% Credit VaR of this 2-bond portfolio according to the Credit Metrics model? Table 1: Joint Migration Probabilities (%) Obligor #2 (B) Obligor #1 A B C D (A) 3.70 94.14 1.26 0.90 A 91.91 3.20 87.56 B 7.32 0.31 0.62 0.53 6.29 0.41 0.31 0.70 0.12 0.32 0.16 0.05 D 0.12 0.02 0.06 0.03 0.01 Table 2: One-year Forward Zero Curves by Credit Rating Categories Category Year 1 Year 2 Year 3 Year 4 A 2.87 3.15 3.58 3.79 B 4.11 4.76 5.12 5.66 C 5.93 6.51 7.02 7.62 Table 3: Recovery Rate by Seniority Class (% of Face Value) Seniority Class Mean (%) Standard Deviation (%) Senior Secured 56.87 27.11 Senior Unsecured 51.42 25.81 Senior Subordinated 38.69 22.15 Subordinated 29.31 19.98 Junior Subordinated 12.46 14.52 4. (CreditMetrics) Financial Institution XYZ plans to use Credit Metrics model to estimate the Credit VaR of its portfolio consisting of two corporate bonds, 1 unit each. XYZ only considers four categories of credit rating, A, B, C, and D (Default). Bond 1 is a A-rated 5-year Senior Unsecured bond with face value