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Answer: In one possible method, recovery rate measure = credit spread divided by hazard rate
The false statement is **B**. A recovery rate is not measured as **credit spread divided by hazard rate**. In simple default-risk models, recovery is more commonly inferred from the **market price at default relative to par**, or from model relationships involving spread and default intensity in a different form. - **A** is true: recovery rates are difficult to measure because defaults and post-default prices vary. - **C** is true: one approach is to use the trading price at default divided by par value. - **D** is true: higher seniority generally implies a higher recovery rate.
Author: Manit Arora
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Q-198.4. According to Fabozzi, each of the following is true about corporate bond recovery rates EXCEPT:
A
Measuring recovery rates is not a simple task
B
In one possible method, recovery rate measure = credit spread divided by hazard rate
C
In one possible method, recovery rate measure = trading price at time of default divided by the par value
D
The higher the level of seniority, in general the greater is the recovery rate
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