Credit Risk Bond Exposure

[Hanuman]

Why is the exposure decreasing?

[fino_abama]

You should be looking at it as an increasing exposure (Year 1 to 5), rather than look at it in reverse.

The exposure is the PV of the zero coupon bond, which is priced at a discount to par value, hence why the exposure is lower initially. As the ZC bond approaches maturity, the pull to par effect increases the PV of the bond and hence the exposure.

[S2000magician]

Because the market value of the (zero-coupon) bond is lower.

[Hanuman]

For zero coupon PV=FV. What am i missing?

[fino_abama]

@Hanuman

For zero coupon PV=FV

How did you come to this conclusion?

[S2000magician]

@Hanuman

For zero coupon PV=FV.

I have some 5-year zero coupon bonds I’d really, really like to sell to you.

[Hanuman]

I get the point. Shame on me!
pv =(0/(1+r)) +(100/(1+r)²)

thanks

[S2000magician]

My pleasure.