5
Fixed IncomeModule 5 of 5

Credit Risk and Credit Analysis

5

Concepts

3

Formulas

1

Decisions

3

Quiz Questions

Explore the Learning Dashboard

Go to the CFA Level 1 Fixed Income hub

Key Concepts

5 concepts covered in this module.

Credit Risk Components

Default risk (probability of default), Loss severity (loss given default), Recovery rate (1 - loss severity). Expected loss = PD × LGD.

Credit Spread

Yield premium over risk-free rate for credit risk. Wider spread = higher perceived risk. Spreads widen in economic downturns.

Study dashboard+3 more concepts

The complete set of concepts for this module lives in the study dashboard, alongside flashcards, quizzes, mind maps and progress tracking.

Open in Dashboard

Formulas

3 essential formulas for this module.

Expected Loss

EL = PD × LGD × EAD

Where: PD = probability of default, LGD = loss given default, EAD = exposure at default

Loss Given Default

LGD = 1 - Recovery Rate

Where: Percentage of exposure lost

Study dashboard+1 more formula

The complete set of formulas for this module lives in the study dashboard, alongside flashcards, quizzes, mind maps and progress tracking.

Open in Dashboard

Decision Frameworks

1 decision frameworks to guide your analysis.

Investment grade vs High yield?

  • IG: lower default risk, lower yield, suitable for conservative portfolios
  • HY: higher yield for accepting more default risk, less sensitive to rate changes, more to credit cycle

Mind Map

Visual overview of how concepts connect in this module.

See the full mind map in the study dashboard

The interactive mind map for this module lives in the study dashboard, alongside flashcards, quizzes and progress tracking.

Open in Dashboard
Practice This Topic

Don't just read Credit Risk and Credit Analysis — practice it

Try 5 sample flashcards and one quiz question here for free. This module's full flashcard deck and quiz live on the study dashboard.

  • 9 interactive flashcards built from this page
  • 3 exam-style quiz questions with instant scoring
  • Progress tracking across all 5 Fixed Income modules
Open This Module in the Dashboard

No signup needed to look around. Create a free account to save your progress.

Try it right here

Flashcard

Credit Risk Components

Tap to reveal the answer

Answer
Default risk (probability of default), Loss severity (loss given default), Recovery rate (1 - loss severity). Expected loss = PD × LGD.
Sample 1 of 5
Study all 9 flashcards in the dashboard

Previous Module

Interest Rate Risk and Duration