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

---

Definitions:

Prices

The financial amount expected, required, or supplied as remuneration for an item.

Income

Money received on a regular basis from work, property, investments, business ventures, and other sources, used to fund consumption and savings.

Laspeyres Index

A price index used to measure the change in the cost of purchasing a fixed basket of goods and services of the same type and quantity over time.

Prices

The amounts of money required to purchase goods or services, setting the economic value of said goods or services in the market.