Microsoft Word - Chap011.doc

The following represents two yield curves.

11-96 What is the implied probability of repayment on one-year B-rated debt?

1. 95.00 percent.
2. 97.17 percent.
3. 94.00 percent.
4. 97.00 percent.
5. 97.09 percent.

Answer: B

11-97 What rate is expected on a one-year B-rated corporate bond in one year? (Hint: Use the implied forward rate.)

1. 10.0 percent.
2. 9.09 percent.
3. 14.15 percent.
4. 12.0 percent.

Maturity	Pure Discount Treasury Yields	B-rated Corporate Bond Yields (Pure Discount Bonds)
1 year	3 percent	6 percent
2 year	6 percent	10 percent
20 year	12 percent	17 percent

11-15

Chapter 11 - Credit Risk: Individual Loan Risk

e. 17.0 percent. Answer: C

11-98 What spread is expected between the one-year maturity B-rated bond and the one-year Treasury bond in one year?

1. 3.00 percent.
2. 5.06 percent.
3. 4.00 percent.
4. 5.00 percent.
5. 7.00 percent.

Answer: B

11-99 What is the expected probability of default in year 2 of two-year maturity B-rated debt?

1. 2.83 percent.
2. 3.00 percent.
3. 4.43 percent.
4. 2.68 percent.
5. 5.00 percent.

Answer: C

11-100 What is the probability that two-year B-rated corporate debt will be fully repaid?

1. 92.9 percent.
2. 95.6 percent.
3. 97.2 percent.
4. 7.10 percent.
5. 4.40 percent.

Answer: A