Tutorial week 9

Question 1

Q1. Your firm has borrowed £560,000 from a local bank to finance the purchase of new equipment. However, due to the increase in energy costs, this year things are not going very well. Your costs have increased significantly, and the survival of the firm is at stake. Your lender is concerned and has started evaluating your performance to understand your credit risk. If the probability of survival in the previous period is 43%, the recovery rate of the loan is 35% and the hazard rate is 28%, estimate the loss given default (LGD), the probability of default (PD) and the expected loss (EL).

Answer 1

Question 2

Answer 2

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