Suppose that the risk-free rate is flat at 6% with annual compounding. One-, two-, and threeyear bonds yield 7.2%, 7.4%, and 7.6% with annual compounding. All pay 6% coupons.

Assume that defaults can happen only at the end of a year (immediately before a coupon payment date). Estimate the risk-neutral probability of default at the end of each year. Assume a recovery rate of 40% and that the claim amount equals the face value plus accrued interest.