The expected loss on a debt security is given by the: A. probability of default times...
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The expected loss on a debt security is given by the:
A. probability of default times the present value of the loss.
B. probability of default times the loss given default.
C. loss given default minus the recovery rate.
Homework Answers
| B. |
probability of default times the loss given default. |
Loss severity is the expected amount a debtholder will lose if the bond defaults. The exepected loss on a debt is the probability that the debt defaults multiplied by the loss severity.
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investment analysis
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