Consider Two Firms, Each of Which Has a Distance-To-Default of 1

question 14

Multiple Choice

Consider two firms, each of which has a distance-to-default of 1. The correlation of default of the two firms is $\rho = 0.5$ . Assuming bivariate normality, what is the probability that both firms default?

• A) 4.50%
• B) 6.25%
• C) 8.75%
• D) 10.25%

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Definitions:

Contextual

Relating to the circumstances surrounding a situation or event which add meaning.

Psychoanalytic

Pertaining to a theory and therapeutic approach that emphasizes the exploration of unconscious desires and conflicts as they manifest in behavior.

Uninvolved

A parenting style characterized by a lack of responsiveness to a child's needs and a general disengagement from their life.

Parents

The guardians responsible for raising and nurturing a child, which can include biological, adoptive, step, or foster parents.