PASS PRO Questions
1.
Based on historical data from S&P, the 1-year default probability for A-rated firms is CLOSEST
to:
A. 0.05%.
B. 0.5%.
C. 1%.
D. 5%.
2.
A portfolio manager owns $18 million worth of AA-rated bonds and $10 million worth of BBrated
bonds. The one-year default probabilities of these bonds are 2 percent and 6 percent
respectively and are independent of each other.
The estimated recovery rates for these bonds are 65 percent and 35 percent respectively.
Based on these assumptions, the one-year expected credit loss from this portfolio is CLOSEST
to:
A. 0.42.
B. 0.44.
C. 0.52.
D. 0.96.
3.
Based on historical data from S&P, the 1-year default probability for AA-rated firms is CLOSEST
to:
A. 0.01%.
B. 0.1%.
C. 1%.
D. 10%.
4.
Which of the following is TRUE in relation to the dividend test provision?
A. It prevents the firm from paying any dividends.
B. It prevents the firm from issuing new debt to pay dividends.
C. It prevents the firm from draining its capital via excessive dividends.
D. It upholds the right of shareholder to received their dividends in the event of a merger.

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