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14 Sep 2024, 22:54
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Dropdown 1: Caa-C/CCC-C
Dropdown 2: 135
Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!
Difficulty:
95%
(hard)
Question Stats:
48% (03:50) correct
52%
(03:56)
wrong
based on 273
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Not Attempted Yet
According to the committee report accompanying the Municipal Bond Fairness Act proposed to the US Congress in 2008 (but which never became law), the cumulative historic default rates of municipal bonds (bonds issued by state and local governments) differ significantly from those of corporate bonds with equivalent credit ratings given by two prominent NRSROs (nationally recognized statistical ratings organizations), Moody's Investors Service and Standard & Poor's Rating Services (S&P). Default rates are shown as percents of all bonds ever issued in that rating category; credit ratings are shown along the horizontal axes.
Fill each blank using the drop-down menu to create the most accurate statement on the basis of the information provided.
The ratings category (as shown) that exhibits the greatest absolute difference between the municipal default rate measured by Moody's and that measured by S&P is
In a group of 540 corporate bonds, 25% of which are rated BBB and 75% of which are rated BB (both by S&P), the approximate number of bonds expected to default is
GMAT-Club-Forum-xexntubo.png [ 38.71 KiB | Viewed 1803 times ]
Fill each blank using the drop-down menu to create the most accurate statement on the basis of the information provided.
The ratings category (as shown) that exhibits the greatest absolute difference between the municipal default rate measured by Moody's and that measured by S&P is
In a group of 540 corporate bonds, 25% of which are rated BBB and 75% of which are rated BB (both by S&P), the approximate number of bonds expected to default is
Attachment:
GMAT-Club-Forum-xexntubo.png [ 38.71 KiB | Viewed 1803 times ]
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Official Answer
Dropdown 1: Caa-C/CCC-C
Dropdown 2: 135
23 Sep 2024, 22:25
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Look to the right graph only for the answer.
Number of BB bonds = 540 * 75%
Default rate for BB bonds = 30%
Number of BB bonds that can default = 540 * 75% * 30% = 121.5 ~ 122
Number of BBB bonds = 540 * 25%
Default Rate for BBB bonds = 10%
Number of BBB bonds that can default = 540 * 25% * 10% = 13.5 ~ 14
Therefore total number of bonds that can default = 121.5 + 13.5 = 135
Number of BB bonds = 540 * 75%
Default rate for BB bonds = 30%
Number of BB bonds that can default = 540 * 75% * 30% = 121.5 ~ 122
Number of BBB bonds = 540 * 25%
Default Rate for BBB bonds = 10%
Number of BBB bonds that can default = 540 * 25% * 10% = 13.5 ~ 14
Therefore total number of bonds that can default = 121.5 + 13.5 = 135
Anjummm1
