The average default rate in the economy is 1.5% of the face value of outstanding debt defaults per year. How many years will it be on average before half the firms are no longer in existence if no new firms enter the economy?
A) 44 years
B) 45 years
C) 46 years
D) 47 years

Question

Quizplus · Accepted Answer

The average time for half the firms to default is the half-life, which can be calculated using the formula for exponential decay: t = ln(2) / rate. Here, the rate is 0.015 (1.5%), so t = ln(2) / 0.015 ≈ 46 years.

The Average Default Rate in the Economy Is 1