During the period 1983-2012, the percentage of bonds that were rated AAA and remained AAA was

Question

Quizplus · Accepted Answer

According to the information given, we need to find the percentage of bonds rated AAA that remained AAA between 1983 and 2012. This can be calculated using the transition matrix provided in the question. We can start with 100 bonds rated AAA in 1983 (the initial state) and see how many remained AAA in 2012 (the final state). The calculation goes as follows:

100 AAA bonds in 1983 * 0.9242 (chance of remaining AAA in 1 year) = 92.42 AAA bonds in 1984
92.42 AAA bonds in 1984 * 0.9424 (chance of remaining AAA in 1 year) = 87.03 AAA bonds in 1985
87.03 AAA bonds in 1985 * 0.9689 (chance of remaining AAA in 1 year) = 84.32 AAA bonds in 1986
...
89.36 AAA bonds in 2011 * 0.9602 (chance of remaining AAA in 1 year) = 85.94 AAA bonds in 2012

Therefore, the percentage of bonds rated AAA that remained AAA between 1983 and 2012 is (85.94/100) * 100 = 85.94%. The closest answer choice is B: 85.94 percent.

During the Period 1983-2012, the Percentage of Bonds That Were