- 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**

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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