1. A portfolio consists of two bonds. The 2% credit VaR is defined as the maximum loss due to defaults at a confidence level of 98% over a one-year horizon. The bond value, default probability, and recovery rate are USD 1,000,000, 3%, and 60% for one bond and USD 600,000, 5%, and 40% for the other. The probability of joint default of the two bonds is 1.47%.
   1. Describe the distribution of portfolio losses (i.e., indicate possible outcomes and their probabilities).
   2. What is the credit VaR of the portfolio (98^th alpha quantile)?

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