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Determine expected credit loss of the portfolio

A portfolio consists of two bonds. The credit-VAR is defined as the maximum loss due to defaults at a confidence level of 98% over a one-year horizon.

The probability of joint default of the two bonds is 1.27%, and the default correlation is 30%. The bond value, default probability, and recovery rate are USD 1,000,000, 3%, and 60% for one bond, and USD 600,000, 5%, and 40% for the other. What is the expected credit loss of the portfolio?

A. USD 0

B. USD 9,652

C. USD 20,348

D. USD 30,000

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Solution Preview :

Prepared by a verified Expert

Finance Basics: Determine expected credit loss of the portfolio

Reference No:- TGS0673748

Have a Question? (oR Write a Review)

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Solution Preview :

Prepared by a verified Expert

Finance Basics: Determine expected credit loss of the portfolio

Reference No:- TGS0673748

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