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:

Nonscientific Context

Situations or discussions that are not based on or related to the principles of science, often involving personal beliefs, cultural practices, or speculative ideas.

Four-legged Whales

Extinct early cetaceans that possessed four limbs, indicating a transitional phase in whale evolution from land to sea.

Indohyus

An extinct genus of even-toed ungulate that lived about 48 to 41 million years ago, believed to be an early relative of whales.

Pakicetus

An extinct genus of early whales living in the Eocene epoch, illustrating a significant stage in the transition from land to sea creatures.