Suppose there is a $1,000,000 portfolio with n = 50 credits that each has a default probability of π=0.02 percent and a zero recovery rate, the default correlation is 0.
　　In addition, each credit is equally weighted and has a terminal value of $20,000 if there is no default. The number of defaults is binomially distributed with parameters of n = 50 and π= 0.02, and the 95th percentile of the number of defaults based on this distribution is 3. What is the credit VaR at the 95% confidence level based on these parameters?
　　A. $30,000
　　B. $40,000
　　C. $50.000
　　D. $60,000
　　Answer:B
　　The expected loss is $20,000 ($1,000,000 0.02). If there are three defaults, the credit loss is $60,000 (3 x $20,000). The credit VaR at the 95% confidence level is $40,000 (calculated by taking the credit loss of$60,000 and subtracting the expected loss of $20,000)