Consider Two Firms with One-Year Probabilities of Default Of $$p _ { 1 } = 0.10$$

Multiple Choice

Consider two firms with one-year probabilities of default of $$p _ { 1 } = 0.10$$ and $$p _ { 2 } = 0.05$$ ,respectively.The conditional probability of default in one year is $$\operatorname { Pr } \left[ D _ { 1 } \mid D _ { 2 } \right] = 0.7$$ .What is the correlation of default of these two firms closest to?

A) 0.25
B) 0.35
C) 0.45
D) 0.55