A company holds a portfolio of CCC-rated 1-year bonds with market value of $800,000. In assessing credit risk of the portfolio, the company estimates that average probability of default is 20% and recovery rate in case of default is 22%. Required:

1) What is dollar amount of expected Loss Given Default in one year?

2) If risk free rate is 3.5%, what is required yield to compensate for holding this portfolio?

3) The company has another loan with increased default risk and decides to recognize loan loss provision based on present value of unexpected credit losses. Do you agree? Briefly explain.