Suppose the Default Probability of a Firm, Conditional on It

question 18

Multiple Choice

Suppose the default probability of a firm, conditional on it not having defaulted so far, is 0.10 per year. What is the 5-year survival probability of the firm?

• A) 49%
• B) 51%
• C) 59%
• D) 61%

---

Definitions:

Diathesis

Diathesis refers to a predisposition or vulnerability to developing a certain disorder or condition based on genetic or psychological factors, often interacting with environmental stressors.

Late Middle Ages

A period in European history from around the 14th to the end of the 15th century marked by social upheaval, the spread of the Black Death, and the transition towards the Renaissance.

Mentally Ill

A condition that affects a person's thinking, feeling, behavior, or mood, significantly impacting daily functioning and life.

Biological Model

An approach in psychology that emphasizes the role of biological processes and structures in influencing behavior and mental processes.