8010 Exam Dumps | The probability of default of a security during the first year after issuance is 3%, that during the

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PRMIA.8010.v2022-06-27.q87
Question 74

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Question 74/87

The probability of default of a security during the first year after issuance is 3%, that during the second and third years is 4%, and during the fourth year is 5%. What is the probability that it would not have defaulted at the end of four years from now?

A. 12.00%

B. 88.53%

C. 88.00%

D. 84.93%

Correct Answer: D

Explanation
The probability that the security would not default in the next 4 years is equal to the probability of survival at the end of the four years. In other words, =(1 - 3%)*(1 - 4%)*(1 - 4%)*(1 - 5%) = 84.93%. Choice 'd' is the correct answer.

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