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Question-5 (10 Points): Consider an A-rated 4-year senior subordinated bond has face value $100 and pays an annual coupon at the rate of 4.5% p.a. Using CreditMetrics model and all the relevant information provided below calculate the 1-year 99% credit VaR when (i) the loss distribution is a normal distribution, (ii) the loss follows its actual distribution. Initial Rating Transition Matrix Rating at year-end (%) AA A BBB AAA BB B CCC Default Seniority Class Senior Secured Senior Unsecured Mean (%) 53.80 51.13 Standard Deviation 26.86 25.45 Subordinated Junior subordinated 32.74 17.09 20.18 10.90 One Year Forward Rate Year 1 Year 2 Year 4 Category AAA AA A BBB BB 3.60 3.65 3.72 4.10 5.55 6.05 15.05 4.17 4.22 4.32 4.67 6.02 7.02 15.02 Year 3 4.73 4.78 4.93 5.25 6.78 8.03 14.03 5.12 5.17 5.32 5.63 7.27 8.52 13.52 B Question-5 (10 Points): Consider an A-rated 4-year senior subordinated bond has face value $100 and pays an annual coupon at the rate of 4.5% p.a. Using CreditMetrics model and all the relevant information provided below calculate the 1-year 99% credit VaR when (i) the loss distribution is a normal distribution, (ii) the loss follows its actual distribution. Initial Rating Transition Matrix Rating at year-end (%) AA A BBB AAA BB B CCC Default Seniority Class Senior Secured Senior Unsecured Mean (%) 53.80 51.13 Standard Deviation 26.86 25.45 Subordinated Junior subordinated 32.74 17.09 20.18 10.90 One Year Forward Rate Year 1 Year 2 Year 4 Category AAA AA A BBB BB 3.60 3.65 3.72 4.10 5.55 6.05 15.05 4.17 4.22 4.32 4.67 6.02 7.02 15.02 Year 3 4.73 4.78 4.93 5.25 6.78 8.03 14.03 5.12 5.17 5.32 5.63 7.27 8.52 13.52 B

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