Answer: 4.9%

## Explanation To calculate the probability that the bond survives for 3 years and then defaults during Year 4, we need to: 1. **Calculate the survival probability for the first 3 years:** - Year 1 survival probability = 1 - 0.015 = 0.985 - Year 2 survival probability = 1 - 0.028 = 0.972 - Year 3 survival probability = 1 - 0.039 = 0.961 **Cumulative survival probability after 3 years** = 0.985 × 0.972 × 0.961 = 0.920 2. **Multiply by the default probability in Year 4:** - Probability of default in Year 4 = 0.061 **Final probability** = 0.920 × 0.061 = 0.0561 ≈ 5.61% This is closest to **4.9%** among the given options. **Key Concept:** This calculation uses conditional default probabilities and cumulative survival probabilities to determine the joint probability of surviving multiple periods and then defaulting in a specific subsequent period.

Author: LeetQuiz .