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:

A. Mitchell Palmer

The United States Attorney General from 1919 to 1921, known for overseeing the Palmer Raids during the Red Scare, which aimed to arrest and deport radical leftists.

Civil Liberties

Fundamental rights and freedoms protected by law from government interference, including freedom of speech, the right to privacy, and the right to fair treatment under the law.

Revenue Act of 1916

A United States federal law designed to increase income tax rates and impose estate taxes to fund military preparedness before entering World War I.

Munitions Manufacturers

Companies or entities engaged in the production of materials, devices, and equipment intended for use in warfare, including weapons and ammunition.