credit risk

agrawal.caamit
Posts: 7
Joined: Mon May 05, 2014 7:53 am

credit risk

Postby agrawal.caamit » Mon May 05, 2014 8:20 am

As per Moody, the 5 yr cumulative probability default for AAA rated debt is 15%. If marginal probability of default for AAA debt from yr 5 to yr 6( Conditional on no prior default) is 10%, then what is the 6 YR cumulative probability default for AAA rated debt?.

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

credit risk

Postby edupristine » Tue May 06, 2014 8:10 am

Prob: 1 - (Not default in 0to 5years)*(Not default in 5-6 years) = 1-(1-0.15)*(1-0.1) = 0.235

agrawal.caamit
Posts: 7
Joined: Mon May 05, 2014 7:53 am

Postby agrawal.caamit » Thu May 08, 2014 2:12 am

But given ans for this question is 22.65


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