CFA Practice Question

There are 252 practice questions for this study session.

CFA Practice Question

Consider a corporate bond. Per 100 of par value, its exposure is 105, and recovery is 60. The probability of default (POD) is 1%. What is the expected loss due to credit risk?

A. 0.40
B. 0.45
C. 0.48
Correct Answer: B

The loss given default (LGD) per 100 of par value is exposure - recovery = 105 - 60 = 45. The expected loss is LGD x POD = 45 x 1% = 0.45.

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