Question
Why is a subordinated bond often rated below the issuer rating?
Tap to flip
Answer
It has lower seniority and lower expected recovery.
Tap to flip back
Question
If recovery rate improves but PD stays the same, what happens to expected loss?
Tap to flip
Answer
Expected loss falls because LGD declines.
Tap to flip back
Question
How do you calculate expected loss in credit analysis?
Tap to flip
Answer
EL=PD×LGD.
Tap to flip back
Question
How does an issuer rating differ from an issue rating?
Tap to flip
Answer
Issuer ratings assess the borrower; issue ratings assess a specific bond.
Tap to flip back