I am dead on this question. I can’t even understand the text :((. How come the first one is the correct answer?

The probability of default for a certain junk bond in a given year is 0.2. What is the probability that zero or one bond of the five defaults in the year ahead in a portfolio of only five of these (Assuming the default risks of these are independent to each other)?

Is this the exact same wording in the text?? If so, it is awfully awkward!

This sounds like a binomial distribution with 5 bonds in total and each has a probability of default = 0.2. What is the probability that 0 or 1 defaults?

It’s not a junk bond; it’s five different junk bonds, whose probabilities of default are not only equal to each other, they’re statistically independent of each other.