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

question 21

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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Definitions:

Contractor

A person or corporation that agrees to a contract to supply materials or workforce to execute a service or complete a task.

Lien

A legal right or claim against a property by a creditor to ensure the payment of a debt.

County Clerk

An official in local government who manages public records and documents, particularly in relation to property and civil records.

Judicial Lien

A lien obtained by a creditor upon a debtor's property, authorized by a judgment, decree, or court order.