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PRMIA Exam 8010 Topic 5 Question 70 Discussion
Actual exam question for
PRMIA's
8010 exam
Question #: 70
Topic #: 5
[All 8010 Questions]
Topic #: 5
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?
Suggested Answer:
D
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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