1. Expected loss is best calculated as:

A. the product of loss severity and default probability.
B. the sum of loss severity and default probability.
C. the product of recovery rate and default probability.


2. A subordinated bondholder recovered some value in a bankruptcy without a senior creditor getting paid in full. The most likely explanation is:

A. absolute priority rules was enforced.
B. the various classes of claimants agreed to it.
C. the company was liquidated rather than reorganized.


3. Using the Moody’s ratings scale, investment grade bonds carry which of the following ratings?

A. Aaa to Baa3.
B. A1 to B3.
C. AAA to BBB–.



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