Assume that corporate bond ratings follow a time invariant Markov process with the abovetransition matrix, , and states {AAA, AA, A, BBB, BB, B,CCC, Default}, represented bythe state s E

{1, ..., 8}, where s = 4, e.g., represents a BBB rating. ) What is the probability that a bond over two years moves from an AAA rating to Default,with the above transition matrix? b) What is the long-term (stationary) distribution, p of ratings for a corporate bond withthe above transition matrix (assuming that it has a very long maturity sate)?

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