- 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**

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:

B. Expected loss.

C. Present value of the expected loss.

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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