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1st question confused me. A) and D) seem true. Long-run variance =w/(1-a-b)=0.000048/(1-0.06-0.82)=0.0004, which corresponds to a long-run volatitity of 2%, so answer C) is false. Meanwhile, 10-day forward forecast of variance =(1-persistence^10)*0.0004+(persistence^10)*(0.04639^2)=0.00175...

Got it. You simply calculated YTM for each bond, then approximated Z-spread by yield-spread. Now I realize even if my assumption works (assuming all bonds are zero-coupon), my way of calculating their yields((100-price)/100, ) is incorrect. The correct way should be (100/price) ^(1/n)-1...

Hi David, my answer is 211.1 C 211.2 C 211.3 B Not quite sure about the last one, since I took two approximations: 1. treat all three bonds as zero-coupon bonds, 2. approximate PD using PD=z_spread/LGD. My method gives PD_A=4%, PD_B=7.8%, PD_C=5% (where z_spread=yield-spot rate, and...