Coogee Bank has made a one-year loan to Slippery Wave, a firm thatmanufactures surfboards. The estimated probability of default of this loan is 5%. The estimated loan recovery rate upon loan default is 0%. The bank has also made a two-year loan to Slippery Wave that provides a return of 10% per annum if the loan is not defaulted. And the bank will lose all the claims on principal and interests upon loan default. The yield is 2% per annum for the 1-year maturity government bond. Based on the prices of 1-year and 2-year maturity government bond prices, the forward rate for the 2nd year is 4% per annum.
What is the cumulative probability of repayment (i.e. not default) of Slippery Wave over the two years? (please choose the closest answer)

Select one:
a. 0.8598
b. 0.8767
c. 0.9363
d. 0.9644
e. 0.9879