Exam 1: Certified Credit Research Analyst

Scott is a credit analyst with one of the credit rating agencies in India. He was looking in Oil and Gas Industry companies and has presented brief financials for following 4 entities: Two credit analysts are discussing the DM-approach to credit risk modeling. They make the following statements: Analyst A: A portfolio's standard deviation of credit losses can be determined by considering the standard deviation of credit losses of individual exposures in the portfolio and summing them all up. Analyst B: I do not fully agree with that. Apart from individual standard deviations, one also needs to consider the correlation of the exposure with the rest of the portfolio so as to account for diversification effects. Higher correlations among credit exposures will lead to higher standard deviation of the overall portfolio.

Statement 1: The Yields on the MBS PTCs are normally higher than the yields on the corporate bonds of similar ratings. Statement 2: The reason for difference in yields on the corporate bonds and similarly rated PTCs is on account of the optionality in the PTC, the unfamiliarity of the structure and uncertainties in respect of legal and structural issues. Which of the above statements is correct?

Scott is a credit analyst with one of the credit rating agencies in India. He was looking in Oil and Gas Industry companies and has presented brief financials for following 4 entities: Which of the following statements is incorrect?