Which of the following statements is true?
A)Cumulative default probability is the probability that a borrower will default over a specified multi-year period.
B)Cumulative default probability is the probability that a borrower will default in any given year.
C)Marginal default probability is the probability that a cluster of borrowers will default over a specified multi-year period.
D)None of the listed options are correct.

Question

Quizplus · Accepted Answer

Cumulative default probability refers to the probability that a borrower will default over a specified multi-year period, usually ranging from one to five years. This is different from the annual or marginal default probability, which focuses on the probability of default in any given year. Option C is incorrect as there is no such thing as marginal default probability for a cluster of borrowers.

Which of the Following Statements Is True