If the odds of default are 1:5, what is the probability of default?

If the odds of default are 1:5, what is the probability of default?
A . 16.67%
B . 20.00%
C . 12.00%
D . 50.00%

Answer: A

Explanation:

Odds are the ratio between the probability of the occurence of an event to the probability that the event does not occur.

If odds are H, then p = H/(1 + H) and H = p/(1-p). In this case the odds are 1:5, or 1/5, therefore the correct answer is Choice ‘a’, equal to (1/5)/(1 + 1/5) = 1/6 = 16.67%. All other choices are incorrect.