question 41 sample caia exam

CAIA
#1

can someone guide me how to do question 41 ?

#2

115 * .04 * (1-.35) = 2.99 72 * .07 * (1-.2) = 4.032 2.99 + 4.032 = 7.022 Answer B I assumed it’s asking for loss at maturity so I added the interest payment. If you do it at inception, you get a lower number but B would still be the answer you’d choose.

#3

thanks what is the formula u used. sorry to hassle u i did not study finance at uni

#4

Prob of default * Exposure at default * Loss given default so basically Probability of default * (Principal plus interest) * (1 - Recovery Rate)

#5

so basically we are adding the interest to the 100 million

#6

Yup 15% interest on the 100 mio and 20% on the 60 mio.