The default correlation ($\rho$) between two firms can be calculated using their joint default probability ($JDP$) and their individual probabilities of default ($PD$). The formula is:

$\rho = \frac{JDP - PD_A \times PD_B}{\sqrt{PD_A(1-PD_A) \times PD_B(1-PD_B)}}$

Given $PD_A = PD_B = 0.0285$ (or 2.85%) and $\rho = 0.45$:

$\rho = \frac{JDP - PD^2}{PD(1-PD)}$ $JDP = \rho \times PD(1-PD) + PD^2$ $JDP = 0.45 \times (0.0285 \times (1 - 0.0285)) + (0.0285)^2$ $JDP = 0.45 \times 0.027688 + 0.000812$ $JDP = 0.012459 + 0.000812 = 0.013271$

Converting this back to a percentage gives approximately 1.33%, which makes Option B the correct answer.