It Is Assumed That a Company Can Default After One

question 20

Multiple Choice

It is assumed that a company can default after one year or after two years.The probability of default at each time is 1.5%.The present value of the expected loss to a bank on a derivatives portfolio if the company defaults after one year is estimated to be $1 million.The present value of the expected loss if it defaults after two years is estimated to be $2 million.Which of the following is the bank's CVA ?

• A)$3,000,000
• B)$300,000
• C)$450,000
• D)$150,000

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