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8. Use the following cumulative average default rates % (1970-2016, Moody's) for bonds./ Time (years) 4 1 5 7 10 2 0.011 0.000 0.031 0.085

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8. Use the following cumulative average default rates % (1970-2016, Moody's) for bonds./ Time (years) 4 1 5 7 10 2 0.011 0.000 0.031 0.085 0.195 0.386 3 0.011 0.110 0.345 0.021 0.060 0.192 0.525 0.778 0.298 0.766 A 0.055 0.536 2.224 1.297 2.472 0.177 0.804 1.216 1.628 3.925 Baa Ba 0.945 0.165 0.461 2.583 8.436 18.670 6.518 16.283 8.392 21.908 B 4.492 13.377 25.443 3.573 10.624 17.828 30.974 11.667 28.857 42.132 36.177 50.258 Caa-C 35.543 What is the probability of default during the third year for a bond initially rated A? What is the probability of default during the third year for this A-rated bond conditional on no earlier default? 8. Use the following cumulative average default rates % (1970-2016, Moody's) for bonds./ Time (years) 4 1 5 7 10 2 0.011 0.000 0.031 0.085 0.195 0.386 3 0.011 0.110 0.345 0.021 0.060 0.192 0.525 0.778 0.298 0.766 A 0.055 0.536 2.224 1.297 2.472 0.177 0.804 1.216 1.628 3.925 Baa Ba 0.945 0.165 0.461 2.583 8.436 18.670 6.518 16.283 8.392 21.908 B 4.492 13.377 25.443 3.573 10.624 17.828 30.974 11.667 28.857 42.132 36.177 50.258 Caa-C 35.543 What is the probability of default during the third year for a bond initially rated A? What is the probability of default during the third year for this A-rated bond conditional on no earlier default

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