CFA Practice Question

There are 252 practice questions for this study session.

CFA Practice Question

Assume a hazard rate of 3% for the first interest payment of $50 (year 1), and a hazard rate of 5% for the second and final interest and principal payment of $1050 (year 2). The recovery rate is 40%.

What is the probability of default occurring at some time in the life of the debt?
A. 7.85%
B. 8%
C. 8.15%
Explanation: Probability of no default: 97% x 95% = 92.15%.

100 - 92.15% = 7.85%.

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