Assume that f₁ = 13.50% and c₁ = 17.40%.Which of the following statements is true?

Question

Quizplus · Accepted Answer

f₁ represents the expected default probability of repayment, and c₁ represents the one-year rate on corporate securities one year into the future. Therefore, from the given values, we can conclude that the expected default probability of repayment is 13.50%, and the one-year rate on corporate securities one year into the future is 17.40%. Hence, option A and C are incorrect. To calculate the expected probability of repayment, we can use the formula: Expected probability of repayment = (1 - Expected default probability of repayment) = (1 - 0.1350) = 0.8650 = 86.50% Therefore, the answer is option B, which states that the expected probability of repayment is 3.32%, is incorrect.

Assume That F1 = 13

Assume That F₁ = 13