1. Consider the following 1-year transition matrix provided by Standard & Poor's (S&P):

One-year transition matrix Initial Rating BBB ccc Rating at year-end 92.81% 0.70% 0.09% 0.02% 0.03% 0.00% 0.22% 6.33% 90.65% 2.27% 0.83% 0.14% 0.11% 0.00% A 0.68% 7.29% 89.05% 6.45% 0.67% 0.24% 0.22% BBB 0.06% 1.14% 7.52% 84.43% 7.73% 0.43% 1.30% 0.12% 0.06% 0.74% 6.50% 80.53% 6.18% 2.38% 0.00% 0.14% 0.26% 8.84% 83.46% 14.24% ccc 0.00% 0.02% 0.01% 0.12% 1.00% 4.38% 61.86% Default 0.00% 0.00% 0.06% 0.18% 1.06% 5.20% 19.78%