Question #23 - Reading 28 Credit Analysis Models

Reading: Reading 28 Credit Analysis Models

PDF File: Reading 28 Credit Analysis Models.pdf

Page: 10

Status: Incorrect

Correct Answer: A

Your Answer: B

Shared Context

- Which of the assumptions stated by Scowen regarding the reduced form model is most accurate? A) Assumption 3. B) Assumption 1. C) Assumption 2.

Question

Using information in Exhibit 2, the value of the Sleepy Bond is closest to:

Answer Choices:

A. $9,433.50

B. $9,566.27

C. $9,500.00

Explanation

The credit valuation adjustment is $66.50, which represents the difference between the price of a risky bond and the equivalent risk-free bond. The one-year risk-free bond price is $9,500 (for a $10,000 par value). bond value = 9,500 – 66.50 = $9,433.50.

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