A Transition Matrix Can Be Used to Establish the Probabilities

question 2

True/False

A transition matrix can be used to establish the probabilities that a currently rated borrower will be upgraded, downgraded or will default over time.

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Definitions:

Unrealized Profits

Gains that have been achieved on paper from an investment but have not yet been realized through a sale or transaction.

Intercompany Sales

Transactions of goods or services between subsidiaries within the same corporate group, not affecting consolidated revenue.

Mark-Up

The amount added to the cost price of goods to cover overhead and profit in setting the selling price.

Cost Method

An accounting approach where investments are recorded at their acquisition cost, without reflecting the investor's share of the investee's profits or losses until dividends are received.