Credit Risk Management Credit Risk Modeling

Question 1

Which model uses a firm's asset value and volatility to estimate the probability of default?

Accepted Answer

Merton structural model

Answer

Altman Z-Score

Answer

CreditMetrics

Answer

Logistic regression

Question 2

In the Altman Z-Score model, a score below 1.81 for a manufacturing firm typically indicates what?

Accepted Answer

High distress zone

Answer

Low credit risk

Answer

Moderate credit risk

Answer

Investment grade status

Question 3

What does the term 'PD' stand for in credit risk modeling?

Accepted Answer

Probability of Default

Answer

Portfolio Duration

Answer

Partial Disclosure

Answer

Payment Delay

Question 4

In logistic regression credit scoring, what is the output variable range?

Accepted Answer

0 to 1

Answer

−∞ to +∞

Answer

0 to 100

Answer

−1 to 1

Question 5

Which of the following is a reduced-form credit risk model?

Accepted Answer

Jarrow-Turnbull model

Answer

Merton model

Answer

KMV model

Answer

Altman Z-Score

Question 6

What is the 'through-the-cycle' (TTC) approach to PD estimation?

Accepted Answer

PD estimates averaged across an entire economic cycle

Answer

PD estimates that vary with each economic cycle phase

Answer

PD based only on current market conditions

Answer

PD derived from equity market prices