Using the Term Structure of Default Probabilities, the Implied Default

question 121

Multiple Choice

Using the term structure of default probabilities, the implied default probability for BBB corporate debt during the second year is

• A)4.20 percent.
• B)98.0 percent.
• C)2.35 percent.
• D)2.71 percent.
• E)3.88 percent. [Refer to: 10-114]

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Definitions:

Expected Future Cash Flows

The estimated amount of money that is anticipated to be generated from an investment, project, or asset over a period of time in the future.

Financial Statement Item

Any line item or component that appears in financial statements, such as balance sheet, income statement, or cash flow statement, representing a company's financial position or performance.

Unreliable

Not able to be trusted or depended upon for accuracy or truthfulness.

Firm's Shares

Equity securities issued by a company, representing ownership in the firm and entitling holders to dividends and voting rights.