1. Which of the following statements is most accurate? The four measures commonly used to quantify credit risk are:
A. credit spread, risk premium, present value of expected loss and recovery rate.
B. probability of default, loss given default, expected loss, and the present value of expected loss.
C. recovery rate, loss given default, expected loss and credit spread.
2. Regarding credit ratings, which of the following statements is least accurate?
A. Credit ratings tend to be stable over time which reduces volatility in debt market prices.
B. Credit ratings do not depend on the business cycle.
C. An issuer-pays model does not create an incentive conflict.
3. Which of the following is least likely a strength of the structural model?
A. It gives an option analogy for understanding a company’s default probability.
B. Current market prices can be used to estimate its value.
C. Credit risk measures can be estimated only by using implicit estimation.