The second panel lists all possible states. In state one, there is no default, which has a probability of \( p_1 \cdot p_2 \cdot p_3 = (1 - 0.05)(1 - 0.10)(1 - 0.20) = 0.684 \), given independence. In state two, bond A defaults and the others do not, with probability \( p_1 \cdot (1-p_2) \cdot (1-p_3) = 0.05 \cdot (1 - 0.10) \cdot (1 - 0.20) = 0.036 \). And so on for the other states.
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**TABLE 18-3: Portfolio Exposures, Default Risk, and Credit Losses**
| Issuer | Exposure | Probability | Default | Loss | Probability | Cumulative | Expected | Variance |
|--------|----------|-------------|---------|------|-------------|------------|----------|----------|
| A | $25 | 0.05 | | | | | | |
| B | $30 | 0.10 | | | | | | |
| C | $45 | 0.20 | | | | | | |
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