Multiple Choice
Consider the following hypothetical transition matrix: 
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% 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% 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% 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% probability of being upgraded to a risk grade of 1.
Correct Answer:
Verified
Correct Answer:
Verified
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