You sell a credit default obligation that ensures the buyer in the event

that a company (GM, say) declares bankruptcy within a given calendar year.

The event of bankruptcy is a function of the state of the auto industry. The

state of the auto industry is 'strong' with probability .60, and 'weak' with

probability .40. The probability of bankruptcy given that the auto industry

is strong is 0.10. The probability of bankruptcy, given that the auto industry

is weak, increases dramatically to 0.30.

1. What is the probability of bankruptcy?

2. What is the probability the market is strong given no bankruptcy?