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

question 12

Multiple Choice

Consider two firms with one-year probabilities of default of $$p _ { 1 } = 0.10$$ and $$p _ { 2 } = 0.05$$ ,respectively.The conditional probability of default in one year is $$\operatorname { Pr } \left[ D _ { 1 } \mid D _ { 2 } \right] = 0.7$$ .What is the correlation of default of these two firms closest to?

• A)0.25
• B)0.35
• C)0.45
• D)0.55

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