11-99 What is the expected probability of default in year 2 of two-year maturity B?rated debt?

Question

Quizplus · Accepted Answer

The 11-99 default probability rating system provides a mapping to Moody's credit rating scale. For a two-year maturity B-rated debt, the Moody's rating range is Ba2-Ba3. According to historical data from Moody's, Ba2 and Ba3 rated issuers had an average cumulative default rate of 4.43 percent after the second year. Therefore, the expected probability of default in year 2 for this type of debt is 4.43 percent. Choice C is the closest option to this answer.

11-99 What Is the Expected Probability of Default in Year