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Answer: 1.15%
The correct answer is A. 1.15%. This is calculated by determining the marginal probability of default for the year 2019, which is the difference between the cumulative default rates at the end of 2019 and 2018. The cumulative default rate at the end of 2016 is 0%, at the end of 2017 is 2.59%, at the end of 2018 is 4.31%, and at the end of 2019 is 5.46%. The marginal probability of default for 2019 is therefore 5.46% - 4.31% = 1.15%. This calculation represents the estimated probability that an issuer defaults in 2019, given that they have not defaulted in the previous years.
Author: LeetQuiz Editorial Team
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In the realm of assessing migration risk, a risk analyst from a rating agency is tasked with evaluating the actual defaults for a specific rating category of corporate issuers. Initially, at the end of 2016, this rating category encompassed 348 issuers. The table below indicates the number of issuers who did not default over a span of three years:
| Year | Non-Defaulted Names at Year-End |
|---|---|
| 2016 | 348 |
| 2017 | 339 |
| 2018 | 333 |
| 2019 | 329 |
Assuming that no new issuers were added to the rating category during the observation period, calculate the 1-year incremental probability of default for the year 2019.
A
1.15%
B
1.20%
C
1.72%
D
1.77%
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