Question: Question 1 (7 points) Instructions: You are required to show all workings for both parts of this question in order to receive full marks. A

Question 1 (7 points) Instructions: You are required to show all workings for both parts of this question in order to receive full marks. A bond portfolio contains 25 identical bonds, each with a 6%probability of defaulting, Defaults are independent. What is the probability that exactly i. Three bonds default? ii. Four bonds default? 7 marks Formulas: Probability of any k bonds defaulting PIK - () **a = p) Number of ways in which k bonds can default (number of combinations) (0) - w! H-)

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