Suppose we have BB rated bond with a maturity of 5 years, par value of $1000. The bond has a coupon of 8%. The credit rating of this bond over a period of time can rise to AAA, fall to CCC or default. Each rating change has a probability as follow: Table 1.1: One year transition matrix Also, the bond is senior unsecured, which present a recovery rate of 83.64% in the case of default. We have a zero-coupon yield curve as follow: Table 1.2: Zero counon rates bv credit ratina cateaorv a. Calculate the stand-alone risk of the said BB-rated bond using provided data (use TWO decimal places). b. When a bank grant a loan to a customer, why does the bank have to make provisions? Please mention and explain two types of provisions. Why does the bank still have to increase level of capital required when it grants a loan to a customer although the bank have made provisions for this loan already Suppose we have BB rated bond with a maturity of 5 years, par value of $1000. The bond has a coupon of 8%. The credit rating of this bond over a period of time can rise to AAA, fall to CCC or default. Each rating change has a probability as follow: Table 1.1: One year transition matrix Also, the bond is senior unsecured, which present a recovery rate of 83.64% in the case of default. We have a zero-coupon yield curve as follow: Table 1.2: Zero counon rates bv credit ratina cateaorv a. Calculate the stand-alone risk of the said BB-rated bond using provided data (use TWO decimal places). b. When a bank grant a loan to a customer, why does the bank have to make provisions? Please mention and explain two types of provisions. Why does the bank still have to increase level of capital required when it grants a loan to a customer although the bank have made provisions for this loan already