Study session 14 - Cross-Reference to CFA Institute Assigned Reading #45 - Credit Analysis Models

Question 0

Present value of expected loss=

Answer 0

value of a credit-risky bond - identical risk-free bond

Question 1

Loss given default (%)

Answer 1

100 - Recovery rate

Question 2

credit spread=

Answer 2

YTM of a credit-risky zero coupon bond - YTM of a risk-free zero coupon bond

Question 3

Value of stock(t)=

Value of debt(t)=

Answer 3

Max (0, At-K)

Min (At, K)

At= value of assets at time T
K= facevalue of debt

Question 4

Value of risky debt=

Answer 4

value of risk-free debt- value of put option on company’s assets

Question 5

The issuer-pays model in credit ratings mays cause a conflict of interest between _______ & ________

Answer 5

rating agencies & usersof ratings (subscribers), not between rating agencies and issuers