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Postby its.ruchi2006 » Tue Jul 16, 2013 5:40 pm

A credit risk manager of Esta bank is reviewing the credit risk of EUR 400000 loan to Kidco, which is a subsidiary of Pattern Inc. Assume that Kidco will default if Pattern Inc default but Pattern will not necessarily default if Kidco defaults.
If POD of Pattern Inc is 1%, POD of Kidco is 5%
Given that Pattern Inc does not default, what is the prob that Kidco defaults in next year

(A) 5%
(B) 6%
(C) 5.95%
(D) 4.95%

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Postby shreyas » Mon Jul 22, 2013 6:25 am

P( kidco default|pattern not defaulting)=0.99*0.05=0.0495=4.95%

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