DEMO QUESTIONS

Q1:

Which of the following statements are true: 1. A transition matrix is the probability of a security migrating from one rating class to another during its lifetime. 2. Marginal default probabilities refer to probabilities of default in a particular period, given survival at the beginning of that period. 3. Marginal default probabilities will always be greater than the corresponding cumulative default probability. 4. Loss given default is generally greater when recovery rates are low.

A: 1 and 3

B: 1, 3 and 4

C: 2 and 4

D: 1 and 4

Correct Answer: C

Q2:

The probability of default of a security during the first year after issuance is 3%, that during the second and third years is 4%, and during the fourth year is 5%. What is the probability that it would not have defaulted at the end of four years from now?

A: 12.00%

B: 88.53%

C: 88.00%

D: 84.93%

Correct Answer: D

Q3:

For credit risk calculations, correlation between the asset values of two issuers is often proxied with:

A: Credit migration matrices

B: Transition probabilities

C: Equity correlations

D: Default correlations

Correct Answer: C

Q4:

Which of the following are valid approaches for extreme value analysis given a dataset: 1. The Block Maxima approach 2. Least squares approach 3. Maximum likelihood approach 4. Peak-over-thresholds approach

A: 2 and 3

B: 1, 3 and 4

C: 1 and 4

D: All of the above

Correct Answer: C

Q5:

Which of the following statements are true: 1. A high score according to Altman’s Z-Score methodology indicates a lower default risk 2. A high score according to the Probit or Logit models indicates a higher default risk 3. A high score according to Altman’s Z-Score methodology indicates a higher default risk 4. A high score according to the Probit or Logit models indicates a lower default risk

A: 3 and 4

B: 2 and 3

C: 1 and 4

D: 1 and 2

Correct Answer: D

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