I have the following question:
An investor holds a portfolio of 50 million dollars. This portfolio consists of 'A' rated bonds (30 million dollars) and 'BBB' rated bonds (20 million dollars). Assume that the one-year probabilities of default for 'A' rated and 'BBB' rated bonds are 3 and 5 percent, respectively, and that they are independent. If the recovery value for 'A' rated bonds in the event of default is 70% and the recovery value for 'BBB' rated bonds is 50%, what is the one-year expected credit loss from this portfolio?
How is this calculated with two differently rated bonds?