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

question 1

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 $$\operatorname { Pr } \left[ D _ { 1 } \mid D _ { 2 } \right]$$ ?

• A)0.55
• B)0.65
• C)0.75
• D)0.85

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