QUESTION 4 Given the following one-year bond ratings transition matrix (keep two decimal places in percentage): 1 Year From a rating AAA AA A BBB BB B AAA 81.16% 1.34% 0.21% 0.10% 0.09% 0.02% 0.21% 0.00% AA 16.21% 81.80% 4.79% 0.87% 0.34% 0.19% 0.08% 0.00% A 2.15% 14.61% 82.04% 11.03% 2.25% 0.80% 1.02% 0.00% To a rating of: BBB BB 0.33% 0.11% 1.68% 0.24% 10.74% 1.43% 74.54% 9.89% 13.44% 64.17% 1.94% 11.37% 1.44% 3.37% 0.00% 0.00% B 0.03% 0.23% 0.68% 2.74% 15.48% 67.01% 15.53% 0.00% 0.01% 0.06% 0.05% 0.29% 1.67% 6.87% 26.34% 0.00% D 0.00% 0.04% 0.06% 0.54% 2.56% 11.80% 52.01% 100.00% of D (a) (b) What is the probability that a bond that starts with an AA rating and ends with a BB rating over two years? What is the probability that a bond that starts with a BB rating and ends with a C rating over three years? What is the probability that a bond that starts with a B rating and ends with an A rating over three years? (c) QUESTION 4 Given the following one-year bond ratings transition matrix (keep two decimal places in percentage): 1 Year From a rating AAA AA A BBB BB B AAA 81.16% 1.34% 0.21% 0.10% 0.09% 0.02% 0.21% 0.00% AA 16.21% 81.80% 4.79% 0.87% 0.34% 0.19% 0.08% 0.00% A 2.15% 14.61% 82.04% 11.03% 2.25% 0.80% 1.02% 0.00% To a rating of: BBB BB 0.33% 0.11% 1.68% 0.24% 10.74% 1.43% 74.54% 9.89% 13.44% 64.17% 1.94% 11.37% 1.44% 3.37% 0.00% 0.00% B 0.03% 0.23% 0.68% 2.74% 15.48% 67.01% 15.53% 0.00% 0.01% 0.06% 0.05% 0.29% 1.67% 6.87% 26.34% 0.00% D 0.00% 0.04% 0.06% 0.54% 2.56% 11.80% 52.01% 100.00% of D (a) (b) What is the probability that a bond that starts with an AA rating and ends with a BB rating over two years? What is the probability that a bond that starts with a BB rating and ends with a C rating over three years? What is the probability that a bond that starts with a B rating and ends with an A rating over three years? (c)