The corporate bonds of ABC company are rated as A rating on the market, and a table of transitions probabilities to different ratings and market values is provided below.

Ratings

Transition probability

Market Value $

AAA

0.02%

108.00

AA

0.33%

107.00

A

87.00%

106.00

BBB

5.90%

105.00

BB

5.00%

100.00

B

1.20%

90.00

C

0.12%

80.00

Default

0.43%

50.00

What is should be the price of this ABC corporate bonds if considering the possible rating migration?

Select one:

a.$106.00

b.$105.00

c.$106.26

d.$105.18

e.$107.02

ABC Ltd. is rated as AA on the bond market and the face value of the bond is $100 with an 8% coupon rate. Given that the risk-free rate is 4% annually and the bond will maturate in 3 years. The mortality rates are provided in the following table.

Cumulative Mortality Rates by Corporate Bond Ratings

Years after Issuance

1

2

3

4

5

6

AAA

0.00%

0.00%

0.00%

0.00%

0.03%

0.03%

AA

0.00%

0.00%

0.32%

0.48%

0.51%

0.54%

A

0.01%

0.11%

0.42%

0.51%

0.65%

0.74%

BBB

0.36%

3.11%

4.12%

5.51%

6.65%

7.34%

BB

1.21%

3.48%

4.42%

6.41%

8.65%

10.24%

What's the current price of ABC Ltd.'s bonds?

Select one:

a.105.24

b.101.48

c.107.02

d.99.76

e.None of the above

A company would like to borrow a $1 million loan from the bank for 3 years. This borrower has a BBB credit rating on the bond market.The bank has collected related corporate bond returns and government bond returns, presented in the following table.

Table 1 Bond ratings and return rates with different maturities

1 year

2 year

3 year

4 year

5 year

AAA

3.50%

4.20%

4.30%

5.45%

6.60%

AA

3.60%

4.60%

4.80%

5.55%

6.90%

A

4.10%

4.90%

5.50%

5.95%

7.20%

BBB

5.30%

5.60%

5.80%

6.50%

7.90%

BB

6.00%

6.50%

6.80%

7.55%

8.10%

B

7.00%

7.50%

8.80%

9.55%

10.10%

CCC

7.50%

7.90%

8.90%

10.55%

11.10%

CC

7.80%

8.80%

9.60%

10.50%

12.80%

Government Bond

1.50%

2.70%

3.10%

3.90%

4.20%

If the loan is granted, what's the probability of default of this loan at maturity date?

Select one:

a.3.61%

b.96.39%

c.5.42%

d.7.46%

e.None of the above

Clear my choice