The price of UBS's $1-$year zero coupon bond $($i$.$e$.,$ no coupon payments$)$ that pays $$100$ a year from now is currently $$94($annualized yield of $6\mathrm{.}38\%),$ the price of their $2-$year zero coupon bond that pays $$100$ in $2-$years is $87($annualized yield of $7\mathrm{.}21\%).$ You observe that a risk$-$free zero coupon bond that pays $$100$ a year from now has a yield of $3\%($annualized$)$ and a price of $97\mathrm{.}0874,$ and that a risk$-$free zero coupon bond that pays $$1002-$years from now has a yield of $3\%($annualized$)$ and a price of $94\mathrm{.}2596.$ The recovery rate if UBS defaults is estimated to be $40\%.$ You can assume the risk$-$free rate is the yield of the risk$-$free bonds. $(21$ points$)$

$($a$)$ Assuming defaults only occur just prior to the bond payments $($so $1-$ or $2-$years from now, calculate and report the implied $1-$year and $2-$year cumulative default probabilities using the information above. Hint, use the $1-$year bonds for the $1-$year probability and the $2-$year bonds for the $2-$year probability. $(8$ points$)$

$($b$)$ For many firms, why might you have to estimate default probabilities from bond spreads instead of using CDS$?(4$ points$)$

$($c$)$ Now calculate a credit value adjustment $($CVA$)$ for UBS assuming you hold assets that have a total net exposure of $$25$ million for each of the next two years, and again that potential defaults only occur $1-$year and $2-$years from now. If you did not answer part a$),$ you can assume any necessary components for your calculations.

$(4$ points$)$

$($d$)$ Explain the terms wrong$-$ and right$-$way risk and give an example of an action by

UBS that might increase its wrong$-$way risk? $(5$ points$)$

Please calculate this former exam task for finance, and show the full solution, this is A whole task.