PV of expected loss

CFA Level II Fixed Income
#1

Do we ALWAYS ise continuous discounting when calculating the present value fo expected loss on a bond’s cash flow(s)?

I came across an example which used continuous compounding- is this always the case?

Thanks,

#2

no, i believe that question ask you to calculate using a continuous risk free rate

#3

For these types of questions, you usually have to calculate the PV of the continous risk-free rate & the PV of the continous total yield (risk-free rate + credit spread).

The difference between these values is basically the PV of expected loss.

#4

The continuous compounding is annoying, but yes I would know how to do it.