The cumulative probability of default for a note over tvvo years is 3.8%.If the probability of default during the first year is 1.5%,the probability of default during the second year is closest to:
A.2.96%
B.2.34%
C.3.17%
D.3.28%
Answer:B
The cumulative probability of default is equal to one minus the probabiJity of surviving to the end ofthe period without default:C2=1-(1-p1)(1-P2)0.038=1-(1-0.015)(1-P2)=>P2=0.0234
.jpg)
