The Probability of a Firm Defaulting Each Year, Given That

question 22

Multiple Choice

The probability of a firm defaulting each year, given that it has not defaulted in prior years is 10%. What is the probability that it will have defaulted at some time in the first 10 years? Approximately:

• A) 50%
• B) 65%
• C) 80%
• D) 100%

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Definitions:

Cognitive Dissonance

A state of psychological tension induced by dissonant relationships between cognitive elements.

Anticipated Reactions

Expectations about how others might respond to one's actions, which can influence decision-making processes.

Situational Constraint

An influence on behavior due to the likelihood that other persons will learn about that behavior and respond positively or negatively to it.

Unit Relation

The fundamental connections or associations between elements within a system, defining how individual parts interact and contribute to the overall structure or function.