Case 3 Company XYZ invests in a corporate bond with a term of 8 years for US $500,000. The interest is paid annually. The bond coupon and effective interest rate is 6%. Using the most relevant information available XYZ make the following estimates: - The bond has 12 months PD of 0,4% and lifetime PD of 20% - The LGD - which is an estimate of the amount of loss if the bond were to default is 25% and would occur in 12 months' time if the bond were to default. XYZ uses an internal credit rating system of 110 with 1 denoting the lowest credit risk. XYZ consider an increase of 2 rating grade to represent a significant increase in credit risk. XYZ considers grade 3 and lower to be a "low credit risk