What Is the Expected Probability of Default in Year 2

question 105

Multiple Choice

What is the expected probability of default in year 2 of two-year maturity B-rated debt?

• A)2.83 percent.
• B)3.00 percent.
• C)4.43 percent.
• D)2.68 percent.
• E)5.00 percent. [Refer to: 10-107]

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Definitions:

Available-for-sale Securities

Financial assets that are not classified as held-for-trading or held-to-maturity, and can be sold in the market.

Fair Value

An estimate of the market value of an asset or liability, based on current prices in an active market or valuation models, indicating what a willing buyer and seller would agree to exchange it for.

Accrued Interest

Interest that has accumulated over a period of time but has not yet been paid or charged.

Semiannual Interest

Interest that is paid or calculated twice a year on a loan or investment.