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Answer: CNY 2.52 million
## Explanation Credit VaR (CVaR) is calculated as: **CVaR = 99th percentile of unrecovered credit loss - Expected Loss (EL)** ### Step 1: Calculate the 99th percentile of unrecovered credit loss - Face value = CNY 630 million - Value at 99% confidence level = CNY 567 million - Recovery rate = 90% Unrecovered credit loss at 99th percentile = (630 - 567) × (1 - 0.9) = 63 × 0.1 = **CNY 6.3 million** ### Step 2: Calculate Expected Loss (EL) - Probability of Default (PD) = 6% - Loss Given Default (LGD) = 1 - Recovery Rate = 1 - 0.9 = 0.1 - Exposure at Default (EAD) = CNY 630 million EL = PD × LGD × EAD = 0.06 × 0.1 × 630 = **CNY 3.78 million** ### Step 3: Calculate Credit VaR CVaR = 6.3 - 3.78 = **CNY 2.52 million** **Why other options are incorrect:** - **B (CNY 3.40 million)**: Incorrect calculation that doesn't properly account for the relationship between EL and CVaR - **C (CNY 3.78 million)**: This is the Expected Loss, not the Credit VaR - **D (CNY 6.30 million)**: This is the 99th percentile of unrecovered credit loss before subtracting Expected Loss
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A credit analyst at an investment firm is estimating the 99% credit VaR of a 1-year zero-coupon bond, the only debt issued by the firm. The analyst obtains relevant data presented below:
Assuming the variation of the future value of the bond is solely due to the possibility of default, and the analyst's estimate of the value of the bond in 1 year at the 99% confidence level is CNY 567 million, what is the bond's implied 1-year 99% credit VaR?
A
CNY 2.52 million
B
CNY 3.40 million
C
CNY 3.78 million
D
CNY 6.30 million
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