A Weakness of Migration Analysis to Evaluate Credit Concentration Risk

question 33

Multiple Choice

A weakness of migration analysis to evaluate credit concentration risk is that the

• A)information obtained for this analysis is usually ex-post (i.e.after the fact).
• B)information obtained for this analysis is ex-ante (i.e.before the fact).
• C)analysis makes use of historical data classified only by industries.
• D)analysis makes use of historical data classified by individual firms.
• E)migration of firms may only be temporary.

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Definitions:

Straight-Line Method

A method of calculating depreciation or amortization by evenly distributing the cost over the useful life of the asset.

Amortization

The process of gradually writing off the initial cost of an intangible asset over a period of time.

Market Rate

The prevailing price or interest rate available in the marketplace for goods, services, or securities.

Present Value Tables

Tables used to find the present value of a sum of money to be received in the future, given a specific discount rate.