A hazard rate is 1% per annum. What is the probability of a default during the first two years?
A. 2.00%
B. 2.02%
C. 1.98%
D. 1.96%
C
The probability of no default is e?0.01×2 = 0.9802 . The probability of default is one minus this or 0.0198 (i.e., 1.98%).
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The installment sale method can be used for all of the following transactions except
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