Work out probability of default instantly with clear inputs, formula shown and shareable results.
A one-year default probability is estimated from observed defaults over obligors, then annualised for the observation window. Compounding survival across years gives the cumulative default probability, which is what matters for long-dated exposures.
Default probability
Annual PD = 1 - (1 - observed rate)^(1/years); cumulative = 1 - (1 - annual PD)^horizon
Figures are estimates based on the inputs given. Bank charges, regulatory minima and market rates change and differ between institutions and jurisdictions. This is not financial advice — confirm with your bank or treasury policy.
Because a borrower can only default once. Survival compounds; default probabilities do not simply add.
For provisioning yes — a single benign year understates default risk badly.