24.6.2. When writing a credit risk assessment report for the risk committee, a junior credit risk analyst includes several statements about the core components and their implications. The credit risk manager reviews the report and highlights the following statements.

• “The Probability of Default (PD) for a loan is identical to its hazard rate, directly indicating the instant rate at which borrowers are expected to default per year, regardless of the loan's term or the time already elapsed without default.”

• “LGD measures the total amount of credit extended to a borrower that is likely to be recovered immediately after a default event, indicating a direct recovery rate without considering the collateral’s value or sale costs.”

• “EAD is the minimum amount that a lender is guaranteed to recover when a borrower defaults, fixed at the initiation of the loan and unaffected by changes in credit line usage or market conditions.”

• “Expected Loss is calculated solely based on the historical default rate of similar loans, serving as a static measure that remains unchanged throughout the life of a loan.”

• “The time horizon for assessing credit risk is typically set to a standard one-year period for all types of loans and credit facilities, regardless of the loan term or the borrower’s specific risk profile.”

Identify which of the statements is INCORRECT: