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QUESTION 3 Consider the following information regarding corporate bonds: Rating AAA AA A BBB BB B CCC Average Default Rate 0.0% 0.0% 0.2% 0.4% 2.1%

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QUESTION 3 Consider the following information regarding corporate bonds: Rating AAA AA A BBB BB B CCC Average Default Rate 0.0% 0.0% 0.2% 0.4% 2.1% 5.2% 9.9% Recession Default Rate 0.0% 1.0% 3.0% 3.0% 8.0% 16.0% 43.0% Average Beta 0.05 0.05 0.05 1.0 0.17 0.26 0.31

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