An AAA-rated 4-year senior unsecured bond has face value $100 and pays an annual coupon at the rate of 6%. The credit transition from rating AAA to other rating may occur at the end of year. Use CreditMetrics model and the information in the following tables to calculate the 95% credit VaR. (Assuming the loss distribution is a normal distribution).

Category Year 1 Year 2 Year 3 AAA 3.60 4.17 4.73 AA 3.65 4.22 4.78 A 3.72 4.32 4.93 BBB 4.10 4.67 5.25 BB 5.55 6.02 B 6.05 7.02 8.03 CCC 15.05 15.02 14.03 6.78 Table 1: One-year forward zero curves by credit rating category (%) Mean (%) 53.80 Standard Deviation (%) 26.86 51.13 25.45 Seniority Class Senior Secured Senior Unsecured Senior subordinated Subordinated Junior subordinated 23.81 38.52 32.74 20.18 10.90 17.09 Table 2: Recovery rate by seniority class(% of face value) Initial Rating Rating at year end (%) AAAAA A BBBBB BCCC Default 90.81 8.33 0.68 0.06 0.120 0 0 AAA Table 3: Probability of state transition (%) Category Year 1 Year 2 Year 3 AAA 3.60 4.17 4.73 AA 3.65 4.22 4.78 A 3.72 4.32 4.93 BBB 4.10 4.67 5.25 BB 5.55 6.02 B 6.05 7.02 8.03 CCC 15.05 15.02 14.03 6.78 Table 1: One-year forward zero curves by credit rating category (%) Mean (%) 53.80 Standard Deviation (%) 26.86 51.13 25.45 Seniority Class Senior Secured Senior Unsecured Senior subordinated Subordinated Junior subordinated 23.81 38.52 32.74 20.18 10.90 17.09 Table 2: Recovery rate by seniority class(% of face value) Initial Rating Rating at year end (%) AAAAA A BBBBB BCCC Default 90.81 8.33 0.68 0.06 0.120 0 0 AAA Table 3: Probability of state transition (%)