Financial Risk Manager Part 1
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A risk manager on the corporate bond desk at an investment company is explaining the important metrics used to measure and manage the risks of bonds to a group of newly hired analysts. The manager describes the concepts of recovery rates and default rates. Which of the following statements is correct for the manager to make?
A
Recovery rates follow lognormal distribution with a single mode, shaped by differences in the seniority levels among bonds from the same issuer.
B
The issuer default rate relates the number of bonds that a specific issuer has defaulted on to the total number of bonds outstanding from this issuer.
C
Recovery rates used in financial analysis are typically calculated as the post-liquidation amount of principal retained by issuers.
D
The dollar default rate uses par values to measure the value of bonds that have defaulted as a percentage of the total value of outstanding bonds.