I am really confused about how to work out the following.
Consider two loans A and B with the same probability of default p(either 0 or 1) in this case p or (1-p) and a default correlation r. (a) Show that the conditional default probability of loan A given that loan B defaults is p + r(1 - p):
Answer : I have tried the following
Create a table B 0 1 A 0 (1-p)^2 pr(1-p) 1 r p(1-p) p^2
But I cant show the proof, How to incorporate the r(correlation) to expectation?