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4. You are looking at a one-year, zero-coupon corporate bond whose yield is 2.82%. In the event this bond defaults you can expect a recovery rate of only 30%. The yield for a similar one-year, zero-coupon risk-free bond is 1.82%. Using the formula for probability of default, what is the market's estimate of the probability that this bond will default (look up the formula in your notes or practice exercises)? (7 points) 1-1 1+yrisk free 1+Vcorporatel Using the probability of default that you calculated, if you were to own $1,000,000 principal of this bond, a. what is the Loss-Given-Default for this bond? b. what is the expected credit loss of this bond? c. what is the standard deviation of credit loss of this bond? LGD PD(1- PD) what is the Credit Value at Risk (CVaR) for this bond at 99% confidence level and the 99.9% confidence level? d. 4. You are looking at a one-year, zero-coupon corporate bond whose yield is 2.82%. In the event this bond defaults you can expect a recovery rate of only 30%. The yield for a similar one-year, zero-coupon risk-free bond is 1.82%. Using the formula for probability of default, what is the market's estimate of the probability that this bond will default (look up the formula in your notes or practice exercises)? (7 points) 1-1 1+yrisk free 1+Vcorporatel Using the probability of default that you calculated, if you were to own $1,000,000 principal of this bond, a. what is the Loss-Given-Default for this bond? b. what is the expected credit loss of this bond? c. what is the standard deviation of credit loss of this bond? LGD PD(1- PD) what is the Credit Value at Risk (CVaR) for this bond at 99% confidence level and the 99.9% confidence level? d

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