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Basic Question 5 of 16
Which equation is correct?
B. Loss given default = Recovery rate - 1.
C. Recovery rate = Loss given default - 1.
A. Loss given default + Recovery rate = 1.
B. Loss given default = Recovery rate - 1.
C. Recovery rate = Loss given default - 1.
User Contributed Comments 2
| User | Comment |
|---|---|
| ashish100 | Tricky tricky.... |
| doubleling | According to investopedia: The recovery rate enables an estimate to be made of the loss that would arise in the event of default, which is calculated as (1 - Recovery Rate). Thus, if the recovery rate is 60%, the loss given default or LGD is 40%. |
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Learning Outcome Statements
describe the seniority rankings of debt, secured versus unsecured debt and the priority of claims in bankruptcy, and their impact on credit ratings
CFA® 2025 Level I Curriculum, Volume 4, Module 16.