The correct answer is C.

The joint probability of default is given by the formula:

$$P D = \rho(AB) \sqrt{P D(A)(1 - P D(A)) \times P D(B)(1 - P D(B))} + P D(A)P D(B)$$

Plugging in the given values:

• $\text{Joint probability of default} = 0.6 \sqrt{0.05(1 - 0.05) \times 0.10(1 - 0.10)} + (0.05 \times 0.10)$
• $\text{Joint probability of default} = 0.6 \sqrt{0.0475 \times 0.09} + 0.0050$
• $\text{Joint probability of default} = 0.6 \sqrt{0.004275} + 0.0050$
• $\text{Joint probability of default} = 0.6(0.06538) + 0.0050$
• $\text{Joint probability of default} = 0.03923 + 0.0050 = 0.04423$ or $4.42%$