What is the probability that it would not have defaulted at theend of four years from now?

The probability of default of a security over a 1 year period is 3% .

What is the probability that it would not have defaulted at theend of four years from now?
A . 11.47%
B . 88.53%
C . 12.00%
D . 88.00%

Answer: B

Explanation:

The probability that the security would not default in the next 4 years is equal to the probability of survival raised to the power four. In other words, =(1 -3%)^4 = 88.53%.

Choice ‘b’ is the correct answer.