Two Firms That Have Zero Default Correlation and Expected Losses

question 18

Multiple Choice

Two firms that have zero default correlation and expected losses conditional on default of $2 million and $3 million,respectively.The probability of loss of the two firms in one year is 0.10 and 0.05,respectively.What is the mean loss of this portfolio?

• A)$250,000
• B)$350,000
• C)$400,000
• D)$500,000

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Definitions:

Avoid Loss

Strategies or actions taken to prevent or minimize financial, emotional, or physical harm.

Undermine Others

The act of subtly weakening or damaging someone else's position, reputation, or success.

Conditional

Relating to a scenario that depends on one or more requirements being met or conditions being fulfilled.

Forgiveness

The process of letting go of resentment, anger, and thoughts of revenge against someone who has wronged you.