medium · Corporate Credit Analysis ratings
An analyst is evaluating the cumulative PD curve of two issuers. Issuer A is an investment-grade (AA) utility, and Issuer B is a speculative-grade (B) technology firm.
Which statement best describes the expected shape of their cumulative PD curves over a 10-year horizon?
- Issuer A curve is convex (accelerating) while Issuer B curve is concave (flattening).
- The two curves should be identical whenever both issuers share the same 1-year hazard rate.
- Both issuers exhibit a purely linear cumulative PD increase throughout the horizon.
- Issuer A's curve is concave while Issuer B's curve is convex over the period.
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