Consider Two Firms, Each of Which Has a Distance-To-Default of 2

Multiple Choice

Consider two firms, each of which has a distance-to-default of 2. The correlation of default of the two firms is $\rho = 0.5$ . Assuming bivariate normality, what is the value of a $100 notional first-to-default basket option on these two firms, if the discount rate is zero?

A) $1
B) $2
C) $3
D) $4