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 correlation of default of these two firms is $\rho = 0.30$ . What is the probability that both firms default in one year?

• A) 1.0%
• B) 1.5%
• C) 2.0$
• D) 2.5%