Consider the following hypothetical transition matrix: Which of the following statements is true?
A)A borrower with a risk grade of 2 at the beginning of the year has a 3% probability of being downgraded to a risk grade of 3.
B)A borrower with a risk grade of 3 at the beginning of the year has a 0.04% probability of being upgraded to a risk grade of 1.
C)A borrower with a risk grade of 2 at the beginning of the year has a 12% probability of being downgraded to a risk grade of 1.
D)A borrower with a risk grade of 2 at the beginning of the year has an 85% probability of being upgraded to a risk grade of 1.

Question

Consider the following hypothetical transition matrix:  Which of the following statements is true?
A)A borrower with a risk grade of 2 at the beginning of the year has a 3% probability of being downgraded to a risk grade of 3. 
B)A borrower with a risk grade of 3 at the beginning of the year has a 0.04% probability of being upgraded to a risk grade of 1. 
C)A borrower with a risk grade of 2 at the beginning of the year has a 12% probability of being downgraded to a risk grade of 1. 
D)A borrower with a risk grade of 2 at the beginning of the year has an 85% probability of being upgraded to a risk grade of 1.

Quizplus · Accepted Answer

The Answer of Consider the following hypothetical transition matrix:  Which of the following statements is true?
A)A borrower with a risk grade of 2 at the beginning of the year has a 3% probability of being downgraded to a risk grade of 3. 
B)A borrower with a risk grade of 3 at the beginning of the year has a 0.04% probability of being upgraded to a risk grade of 1. 
C)A borrower with a risk grade of 2 at the beginning of the year has a 12% probability of being downgraded to a risk grade of 1. 
D)A borrower with a risk grade of 2 at the beginning of the year has an 85% probability of being upgraded to a risk grade of 1.

Consider the Following Hypothetical Transition Matrix: Which of the Following