Consider a bond portfolio, which has the following characteristics: Initial size of the portfolio: 200 AUD

Defaults in the first year: 10 AUD

Bonds maturing at the end of the first year: 15 AUD

Defaults in the second year: 10 AUD

Bonds maturing at the end of the second year: 15 AUD

Defaults in the third year: 10 AUD

Bonds maturing at the end of the third year: 15 AUD

a)Calculate the marginal mortality rate for the first, second and third year.

b)Calculate the cumulative mortality rate for the first, second and third year.

c)Interpret your finding.

Consider an Altman z-score model. The predicting variables for corporation A take the following valuesX1= 0.5,X2= 0.1,X3= 0.2,X4= 0.2,X5= 0.5. The current share price of the corporation is 100 AUD.

a)Calculate the Z-score.

b)The share price changes. For which new share price would the corporation become a low

default risk corporation?

c)Interpret the + sign in front of the coefficients in the Altman discriminant function.

Answer rating: 100% (QA)

Bond Portfolio Analysis a Marginal Mortality Rate MMR MMR for year 1 Defaults in year 1 Initial portfolio size 10 AUD 200 AUD 005 5 MMR for year 2 Def... View the full answer