Question: Problem 1 . Consider the following transition matrix: Rating at year End AAA AA A BBB BB B CCC Default AAA 9 0 , 8

Problem 1. Consider the following transition matrix: Rating at year End AAA AA A BBB BB B CCC Default AAA 90,818,330,680,060,120,000,000,00 AA 0,7090,657,790,640,060,140,020,00 A 0,092,2791,055,520,740,260,010,06 BBB 0,020,335,9586,935,301,171,120,18 BB 0,030,140,677,7380,538,841,001,06 B 0,000,110,240,436,4883,464,075,20 CCC 0,220,000,221,302,3811,2464,8619,79 Initial Rating Compute the 2-year transition probabilities of a BB rated loan

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