What is the expected duration for this three-year loan?

A credit rating analyst wants to determine the expected duration of the default time for a new three-year loan, which has a 2% likelihood of defaulting in the first year, a 3% likelihood of defaulting in the second year, and a 5% likelihood of defaulting the third year.

What is the expected duration for this three-year loan?
A . 1.5 years
B . 2.1 years
C . 2.3 years
D . 3.7 years

View Answer

Answer: C