Question #18
Reading: Reading 28 Credit Analysis Models
PDF File: Reading 28 Credit Analysis Models.pdf
Page: 7
Status: Correct
Correct Answer: A
Question
Credit valuation adjustment is most likely:
Answer Choices:
A. the sum of present values of expected losses
B. higher when the recovery rate is higher
C. higher when the probability of survival is higher
Explanation
Credit valuation adjustment (CVA) is the sum of present values of expected losses. CVA is
positively related to the probability of default and negatively related to probability of
survival and recovery rate.