Consider Two Firms with One-Year Probabilities of Default Of $$p _ { 1 } = 0.10$$

question 9

Multiple Choice

Consider two firms with one-year probabilities of default of $$p _ { 1 } = 0.10$$ and $$p _ { 2 } = 0.05$$ ,respectively.The correlation of default of the two firms is $$\rho = 0.5$$ .What is the conditional probability of default $$\operatorname { Pr } \left[ D _ { 2 } \mid D _ { 1 } \right]$$ ?

• A)0.38
• B)0.42
• C)0.46
• D)0.50

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Definitions:

Activity-based Budgeting

A budgeting approach based on the activities that incur costs within an organization, focusing on managing business activities that drive costs.

Master Budget

Master budget is a comprehensive financial planning document that consolidates all of a company’s individual budgets related to sales, production, manpower, etc.

Budgets Developed

Refer to the process of creating financial plans for an organization or individual's future operations, typically involving setting goals, estimating revenues, and allocating resources.

Short-term Note

A debt obligation that is due to be repaid within a short timeframe, typically less than a year.