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Answer: 1.15%
The correct answer to the question is A, which is 1.15%. This is determined by calculating the marginal probability of default for the year 2019. The marginal probability of default is the rate at which issuers default within a specific year, in this case, between the end of 2018 and the end of 2019. The calculation is performed by subtracting the cumulative default rate at the end of 2018 (4.31%) from the cumulative default rate at the end of 2019 (5.46%), resulting in a 1.15% marginal probability of default for the year 2019. This calculation is based on the observed defaults in the given rating class of corporate issuers, with the number of non-defaulted names decreasing from 348 at the end of 2016 to 329 at the end of 2019. The other options provided are incorrect as they either represent different calculations or pertain to different years. Option B (1.20%) is the 1-year conditional default rate for 2019, option C (1.72%) is the annual marginal probability of default between 2017 and 2018, and option D (1.77%) is the 1-year conditional default rate for 2018.
Author: LeetQuiz Editorial Team
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In a thorough assessment of migration risk, a risk analyst from a rating agency examines the actual defaults within a particular rating category for corporate issuers. Originally, at the end of 2016, this rating category contained 348 issuers. The following table displays the number of issuers that did not default over the next three years:
| Year | Count of Non-Defaulting Issuers by Year's End |
|---|---|
| 2016 | 348 |
| 2017 | 339 |
| 2018 | 333 |
| 2019 | 329 |
Assuming no new issuers were added to this rating category throughout the observation period, what is the calculated 1-year incremental probability of default for the year 2019?
A
1.15%
B
1.20%
C
1.72%
D
1.77%