Reference no: EM132956572

1) Suppose that the market expects that there is a 20% chance a borrower will default and the recovery is expected to be 43%. Assume the premium for the CDS on the borrower's debt is the same as the expected loss. How much is the CSD seller's net loss (in percentage) in case of an actual default and the realized recovery is the same as expected (ignoring the time value of money)? Enter answer as a percentage number but without the "%" sign (Example: Enter 10.50 for 10.50%; do not enter "10.50%" or "0.1050") .

2) If the cumulative probability of default of a bond for the next 8 years is 31%, what is probability of default per year? Enter answer as a percentage number but without the "%" sign (Example: Enter 10.50 for 10.50%; do not enter "10.50%" or "0.1050").

3)If the cumulative probability of default of a bond for the next 4 years is 48%, what is the conditional marginal probability of default in the third period ? Enter answer as a percentage number but without the "%" sign (Example: Enter 10.50 for 10.50%; do not enter "10.50%" or "0.1050").

4)Which of the following is NOT true about securities lending business, according to our analysis of AIG?

A) In a securities lending transaction, one party borrows a security from another and deposits collateral, typically cash, with the securities lender.
B) The securities lender has relatively lower risk than the securities borrower as the lender can always demand back the lent securities.
C) The securities lender invests the collateral and earns a yield from these investments, less a rebate paid to the securities borrower.
D) The cost to the security borrower is the difference between the return the borrower could have earned investing the cash collateral and the security borrowing fee.