Let the constant hazard rate be $\lambda = 0.090$. The cumulative probability of default by time $t$ is $PD(t) = 1 - e^{-\lambda t}$ and the survival probability is $S(t) = e^{-\lambda t}$.

• A is true: The unconditional 1-year default probability is $1 - e^{-0.090 \times 1} = 1 - e^{-0.09} \approx 1 - 0.9139 = 0.0861$or$\approx 8.6%$.
• B is true: The 2-year cumulative default probability is $1 - e^{-0.090 \times 2} = 1 - e^{-0.18} \approx 1 - 0.8353 = 0.1647$or$\approx 16.5%$.
• C is true: The joint probability of survival through year 1 and default in year 2 is $S(1) - S(2) = e^{-0.090} - e^{-0.180} \approx 0.9139 - 0.8353 = 0.0786$ or $\approx 7.9\%$.
• D is false (and therefore the correct answer): Because the exponential distribution is "memoryless," the conditional probability of defaulting in the second year given survival through the first year is exactly the same as the unconditional one-year default probability. The conditional 1-year default probability is $1 - e^{-0.09} \approx 8.6%$, not `$17.3`%$.