4/16/25, 1:03 AM Gurleen Bajwa - AFF811/FIN801 011 - Financial Risk Management - W2025 - Toronto Metropolitan University
Review Quiz 8 - Results X
Attempt 1 of 1
Written Mar 27, 2025 10:05 PM - Mar 27, 2025 10:24 PM
Attempt Score 106.25 %
Overall Grade (Highest Attempt) 106.25 %
Question 1 points
A bank has lent $290,000 to a firm at an interest rate of 5.2%. If this loan has
a default probability of 3.0% and an expected recovery rate in event of default
of 36%, what is the expected dollar credit loss for this loan?
Note: Your answer must be accurate to within one dollar.
Answer:
5,568 v
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The appropriate calculation is:
E(credit loss) = Loan amount x (1 - Expected recovery rate) x Default
probability
Question 2 points
https://courses.torontomu.ca/d2l/Ims/quizzing/user/quiz_submissions_attempt.d21?isprv=&qi=44187 1&ai=10628669&isInPopup=0&cfql=0&fromQB=0&... 1/6
, 4/16/25, 1:03 AM Gurleen Bajwa - AFF811/FIN801 011 - Financial Risk Management - W2025 - Toronto Metropolitan University
A firm has assets with a current value of $40 million and a continuously
compounded return volatility of 17%. The senior secured zero-coupon bonds
of the firm have a face value of $20 million. The average CDS spread for these
bonds is 1.75%, based on an expected recovery rate of 44%. The continuously
compounded risk-free interest rate is 1.00%. What is the risk-neutral default
intensity of these bonds?
Note: Your answer must be expressed in percentage terms and accurate to
within 0.01%.
Answer:
3.13 v
w Hide question 2 feedback
Feedback
The appropriate approximation is:
Lambda = CDS spread / (1 - Expected recovery rate)
Question 3 points
A firm has assets with a current value of $47 million and a continuously
compounded return volatility of 20%. It also has $27 million face value of
zero-coupon bonds that have 7 years to maturity, a continuously compounded
YTM of 4.45%, and an expected recovery rate of 42%. The continuously
compounded risk-free interest rate is 1.95%. What is the distance to default
of this debt?
Note: Your answer must accurate to within 0.01.
Answer:
1.04 v
w Hide question 3 feedback
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Review Quiz 8 - Results X
Attempt 1 of 1
Written Mar 27, 2025 10:05 PM - Mar 27, 2025 10:24 PM
Attempt Score 106.25 %
Overall Grade (Highest Attempt) 106.25 %
Question 1 points
A bank has lent $290,000 to a firm at an interest rate of 5.2%. If this loan has
a default probability of 3.0% and an expected recovery rate in event of default
of 36%, what is the expected dollar credit loss for this loan?
Note: Your answer must be accurate to within one dollar.
Answer:
5,568 v
w Hide question 1 feedback
Feedback
The appropriate calculation is:
E(credit loss) = Loan amount x (1 - Expected recovery rate) x Default
probability
Question 2 points
https://courses.torontomu.ca/d2l/Ims/quizzing/user/quiz_submissions_attempt.d21?isprv=&qi=44187 1&ai=10628669&isInPopup=0&cfql=0&fromQB=0&... 1/6
, 4/16/25, 1:03 AM Gurleen Bajwa - AFF811/FIN801 011 - Financial Risk Management - W2025 - Toronto Metropolitan University
A firm has assets with a current value of $40 million and a continuously
compounded return volatility of 17%. The senior secured zero-coupon bonds
of the firm have a face value of $20 million. The average CDS spread for these
bonds is 1.75%, based on an expected recovery rate of 44%. The continuously
compounded risk-free interest rate is 1.00%. What is the risk-neutral default
intensity of these bonds?
Note: Your answer must be expressed in percentage terms and accurate to
within 0.01%.
Answer:
3.13 v
w Hide question 2 feedback
Feedback
The appropriate approximation is:
Lambda = CDS spread / (1 - Expected recovery rate)
Question 3 points
A firm has assets with a current value of $47 million and a continuously
compounded return volatility of 20%. It also has $27 million face value of
zero-coupon bonds that have 7 years to maturity, a continuously compounded
YTM of 4.45%, and an expected recovery rate of 42%. The continuously
compounded risk-free interest rate is 1.95%. What is the distance to default
of this debt?
Note: Your answer must accurate to within 0.01.
Answer:
1.04 v
w Hide question 3 feedback
https://courses.torontomu.ca/d2l/Ims/quizzing/user/quiz_submissions_attempt.d21?isprv=&qi=441871&ai=10628669&isInPopup=0&cfql=-0&fromQB=0&... 2/6
