Suppose that the risk-neutral default probability for a one-year zero-coupon bond is 1% and the real-world default
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Suppose that the risk-neutral default probability for a one-year zero-coupon bond is 1% and the real-world default probability for the bond is 0.25%. The risk-free yield curve is flat at 6% and the excess return of the market over the risk-free rate is 5%. What does this imply about the bond's beta? Assume no recovery in the event of default.
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