# Hull_OFOD9e_MultipleChoice_Questions_and_Answers_Ch24.doc | Option (Finance) | Bond Credit Rating

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Hull: Options, Futures, and Other Derivatives, Ninth Edition Chapter 24: Credit Risk Multiple Choice Test Bank: Questions with Answers 1. Suppose that the cumulative probability of a company defaulting by years one, two, three and four are 3%, 6.5%, 10%, and 14.5%, respectively. What is the probability of default in the fourth year conditional on no earlier default? A. 4.5% B. 5.0% C. 5.5% D. 6.0% Answer: B The unconditional PD for the fourth year is 14.5% minus 10% or 4.5%. The probability of n
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