- 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
CFA Practice Question
Consider a corporate bond. Per 100 of par value, its exposure is 96, and recovery is 50. The probability of default (POD) is 0.5%. What is the expected loss due to credit risk?
A. 0.15
B. 0.21
C. 0.23
Explanation: The Loss given default (LGD) per 100 of par value is exposure - recovery = 96 - 50 = 46. The expected loss is LGD x POD = 46 x 0.5% = 0.23.
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