An analyst at a financial institution has been asked to assess the quality of estimating credit VaR (CVaR) of a homogeneous portfolio of firms (credits) using the single-factor model, under which default correlation varies with the firm's beta to the market factor. The analyst examines the portfolio under the following assumptions:

There are 1,000 firms (credits) in the portfolio.

Each firm represents 0.1% of the portfolio.

There is no idiosyncratic risk.

Loss given default is the same for each firm in the portfolio.

Based on the information provided, which of the following observations, if made by the analyst, would be correct regarding the application of the single-factor model and its parameters?

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When the firm's beta to the market factor is equal to 1, the loss rate of the credits is either 0% or 100%.

The distance to default of a firm will typically be low if the correlation to the market factor is low, for a given probability of default.

When the asset return correlation to the market factor is equal to zero, the loss rate is typically higher than the probability of default of a firm in the portfolio.

The asset return correlation to the market factor is measured by the square root of beta.

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