An analyst has gathered the following information about ABC Inc. a.'1d DEF Inc.The respective credit ratings are AA and BBB with l-year CDS spreads of200 and 300 basis points each.

The associated probabilities of default based on published reports are 10% and 20%, respectively. Which ofthe following statements about the recovery rates is most likely correct?

A. The market implied recovery rates are equal.

B. The market implied recovery rates is higher for ABC.

C. The market implied recovery rates is lower for ABC.

D. The loss given default is higher for DEF.

Answer：C

The approximation of credit spread = (1 - RR) X (PD). This implies: ABC: 200 bps=(I-RR)X(10%), so RR= 80%.

DEF: 300 bps = (1 - RR) X (20%), so RR = 85%.

Thus, the market implied recovery rate is lower for ABC. Using loss given default terminology,

LGD for ABC = 20% and LGD for DEF = 15%.

本文FRM考试网小编，将本题翻译为中文内容如下：

一位分析师收集了以下关于ABC Inc. a。DEFD Inc.的信息。各自的信用评级是AA和BBB，1年CDS利差分别为200和300个基点。

相关的基于公布报告的违约概率分别为10%和20%。 以下哪项关于恢复率的说法最可能是正确的?

A：市场隐含的回收率是平等的。

B. ABC的市场隐含回收率较高。

C. ABC的市场隐含回收率较低。

D. DEF给定的损失默认值更高。

答案：C

信用利差近似值=(1 - RR)X(PD)。 这意味着：ABC：200 bps =(I-RR)X(10%)，所以RR = 80%。

DEF：300bps =(1-RR)×(20%)，所以RR = 85%。

因此，ABC的市场隐含回收率较低。 使用损失给定的默认术语，

ABC的LGD = 20%，DEF的LGD = 15%。

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