Which of the Following Is True

question 15

Multiple Choice

Which of the following is true?

• A) Risk neutral default probabilities are usually much lower than real world default probabilities
• B) Risk neutral default probabilities are usually much higher than real world default probabilities
• C) Risk neutral and real world probabilities must be close to each other if there are to be no arbitrage opportunities
• D) Risk-neutral default probabilities cannot be calculated from CDS spreads

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Definitions:

Unprofitable Product Line

A series of related products that do not generate expected profits, often identified through financial analysis for potential discontinuation.

Total Variable Costs

The sum of all costs that vary with production output, including materials and labor.

Total Fixed Costs

The sum of all costs that do not change with the level of production or sales activities within a certain range or period.

Unit Variable Cost

The variable cost associated with producing one unit of product, including labor, materials, and other costs that vary with production volume.