Hello
In one of GARP's practice exam questions it asks:
An Analyst estimates that the harzard rate for a company is 0.1 per year. What is the probability of survival in the first year followed by a default in the second close to?
The answer is the marginal probability (or unconditional probably) of default between year 1 and year 2. My question is why is it not the the unconditional probably for year 2 divided by the probably of survival in year 1. i.e. a conditional probability?
Thanks
Kashif
In one of GARP's practice exam questions it asks:
An Analyst estimates that the harzard rate for a company is 0.1 per year. What is the probability of survival in the first year followed by a default in the second close to?
The answer is the marginal probability (or unconditional probably) of default between year 1 and year 2. My question is why is it not the the unconditional probably for year 2 divided by the probably of survival in year 1. i.e. a conditional probability?
Thanks
Kashif