A Stock Has a Probability of Jumping to Default Based $\lambda = 0.05$

question 18

Multiple Choice

A stock has a probability of jumping to default based on the first arrival of a Poisson process with $\lambda = 0.05$ . What is the probability of a jump-to-default in any month?

• A) 0.4158%
• B) 0.4167%
• C) 0.4195%
• D) 0.5000%

---

Definitions:

Quality of Income Ratio

A measure that indicates the amount of earnings that are realized as cash; assessing the ability of a firm to convert its net income into cash.

Interest Expense

The cost incurred by an entity for borrowed funds over a period, typically reported in financial statements.

Account Receivable

Money owed to a business by its clients for goods or services that have been delivered but not yet paid for.

Schedule Analysis

A method used to examine and interpret the timing and amounts of future cash flows, expenses, or revenues.