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Basic Question 1 of 9
Which equation is correct?
B. Loss given default = Recovery rate - 1.
C. Recovery rate = Loss given default - 1.
A. Loss given default + Recovery rate = 1.
B. Loss given default = Recovery rate - 1.
C. Recovery rate = Loss given default - 1.
User Contributed Comments 2
| User | Comment |
|---|---|
| ashish100 | Tricky tricky.... |
| doubleling | According to investopedia: The recovery rate enables an estimate to be made of the loss that would arise in the event of default, which is calculated as (1 - Recovery Rate). Thus, if the recovery rate is 60%, the loss given default or LGD is 40%. |
I am happy to say that I passed! Your study notes certainly helped prepare me for what was the most difficult exam I had ever taken.
Andrea Schildbach
Learning Outcome Statements
explain expected exposure, the loss given default, the probability of default, and the credit valuation adjustment;
CFA® 2024 Level II Curriculum, Volume 4, Module 31.