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 these two firms is $\rho = 0.30$ . What is the probability that both firms default in one year?
A) 1.0%
B) 1.5%
C) 2.0$
D) 2.5%

Question

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 these two firms is $\rho = 0.30$ . What is the probability that both firms default in one year?
A) 1.0%
B) 1.5%
C) 2.0$
D) 2.5%

Quizplus · Accepted Answer

The Answer is D

Consider Two Firms with One-Year Probabilities of Default Of p1=0.10p _ { 1 } = 0.10p1​=0.10

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