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One-year probability of default for A-rated bond: 3% (recovery rate is 70%) One-year probability of default for BBB-rated bond: 5% (recovery rate is 45%) John

One-year probability of default for A-rated bond: 3% (recovery rate is 70%)

One-year probability of default for BBB-rated bond: 5% (recovery rate is 45%)

John invests 40% of his $1 Million to A-rated bond and the rest to BBB-rated bond that have characteristics given above. What is the one-year expected credit loss of his portfolio if these two bonds are independent?

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