Consider the Following Hypothetical Transition Matrix: Risk Grade at End

Multiple Choice

Consider the following hypothetical transition matrix: Risk grade at end of year
Which of the following statements is true?

A) A borrower with a risk grade of 2 at the beginning of the year has a 3 per cent probability of being downgraded to a risk grade of 3.
B) A borrower with a risk grade of 3 at the beginning of the year has a 0.04 per cent probability of being upgraded to a risk grade of 1.
C) A borrower with a risk grade of 2 at the beginning of the year has a 12 per cent probability of being downgraded to a risk grade of 1.
D) A borrower with a risk grade of 2 at the beginning of the year has an 85 per cent probability of being upgraded to a risk grade of 1.