The Credit Spreads for a Counterparty for 5 and 6

question 1

Multiple Choice

The credit spreads for a counterparty for 5 and 6 years are 2% and 2.2% respectively.The recovery rate is 60%.What is closest to the unconditional default probability for the sixth year?

• A) 0.04
• B) 0.05
• C) 0.06
• D) 0.07

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Definitions:

Commercial Insurers

Private entities that provide a range of health insurance plans and policies to individuals and businesses, operating for profit.

Actuarial

Pertaining to actuaries or the statistical and mathematical methods they use to calculate risk, especially in the insurance and finance industries.

Community Risk

The potential for harm or adverse effects on a community due to external or internal variables.