Assume there are three debt ratings: A, B, and D, where D stands for default. The one-period
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Assume there are three debt ratings: A, B, and D, where D stands for default. The one-period risk-neutral transition probability matrix for ratings is given as:
What is the probability of default of an A-rated firm in one period, two periods, and ten periods?
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0.9 0.1 0 0.1 0.8 0.1 01 Q = 0.1 0
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