CFA Practice Question

There are 252 practice questions for this study session.

CFA Practice Question

If you can pay a fee to transform a credit risky bond to a riskless bond, that fee should be equal to the bond's:

A. Loss given default.
B. Expected loss.
C. Present value of the expected loss.
Correct Answer: C

The present value of the expected loss (credit value adjustment) is the max price that an investor would be willing to pay on a bond to a third party to eliminate the credit risk, assuming the third party is free of default risk.

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