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Your method here is correct, also confirmed by David's first response at the top on how to tackle the question. Looks like the trick here was that question provided the 5% PD and asked for a 95% Credit VAR, so really not much calculation was needed .... Tricky, tricky GARP

Thanks for the reply David definitely helps clear things up!

Hi David, I have a question about the Vasicek Model. I have seen a couple of practice questions come up (not BT questions) where the volatility adjustment is ignored when determine the future rate. For reference let me post some details of the question I just saw today: -mean reversion...

I would say its entirely based on where you live and whether you want to work in the energy sector or not. For example, in North America, if you happen to live in Houston or Calgary (where I use to live) the ERP would be highly sought after as there are tons of energy companies in both cities...