Suppose That the Cumulative Probability of a Company Defaulting by Years

question 17

Multiple Choice

Suppose that the cumulative probability of a company defaulting by years one,two,three and four are 3%,6.5%,10%,and 14.5%,respectively.What is the probability of default in the fourth year conditional on no earlier default?

• A) 4.5%
• B) 5.0%
• C) 5.5%
• D) 6.0%

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Definitions:

Self-Fulfilling Prophecy

A belief or expectation that influences actions in a way that causes the belief or expectation to come true.

Status Groups

Communities or categories of people who share a similar social status, often marked by their prestige, lifestyle, and affiliations within a society.

Initiation Rite

A ceremonial event or series of actions performed to mark the transition or entrance of an individual into a new status or role in society.

Identity

The qualities, beliefs, personality, appearance, and expressions that make a person (self-identity) or group (collective identity) unique.