Is This an Acceptable Transition Matrix? Explain Your Answer

question 6

Essay

Is this an acceptable transition matrix? Explain your answer.
| .3 .3 .4 0 |
| .2 .5 0 .3 |
| .1 .6 .2 .1 |

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Definitions:

Sinking Fund Bonds

Bonds that include a provision for the issuer to create a fund for repaying the bond principal at or before maturity.

Term Bonds

Bonds that have a specific maturity date on which the principal is due to be paid to bondholders.

Trust Indenture

A trust indenture is a legal agreement in a bond contract that outlines the responsibilities of the bond issuer and the rights of the bondholders.

Unamortized Discount

The portion of a bond discount that has not yet been amortized (expensed) over the life of the bond.