Consider the Following Hypothetical Transition Matrix: Risk Grade at End

question 35

Multiple Choice

Consider the following hypothetical transition matrix: Risk grade at end of year
Which of the following statements is true?

• A)A borrower with a risk grade of 2 at the beginning of the year has a 3 per cent probability of being downgraded to a risk grade of 3.
• B)A borrower with a risk grade of 3 at the beginning of the year has a 0.04 per cent probability of being upgraded to a risk grade of 1.
• C)A borrower with a risk grade of 2 at the beginning of the year has a 12 per cent probability of being downgraded to a risk grade of 1.
• D)A borrower with a risk grade of 2 at the beginning of the year has an 85 per cent probability of being upgraded to a risk grade of 1.

---

Definitions:

University Book Store

A retail outlet, typically located within or near a college or university, that specializes in selling textbooks, academic materials, and merchandise.

Exercise

Physical activities that are performed in order to maintain or improve fitness and health.

Hours

Units of time equal to 60 minutes, commonly used to measure the duration of activities or to record time.

Retirement Ages

The ages at which individuals are typically expected or allowed to cease full-time employment and receive pension benefits.