- CFA Exams
- CFA Level I Exam
- Study Session 13. Fixed Income (2)
- Reading 35. Credit Analysis Models
- Subject 1. Modeling credit risk and the credit valuation adjustment

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**CFA Practice Question**

For a 10-year corporate bond the probability of default is estimated to be 2%. The expected recovery rate in the event of default is 70%. What is the expected loss?

B. 0.6%

C. 0.686

A. 1.4%

B. 0.6%

C. 0.686

Correct Answer: B

2% x (1 - 70%) = 0.6%.

Note it is not the present value of expected loss.

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