Suppose that the spread between the yield on a three-year zero-coupon corporate bond and the yield on
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Suppose that the spread between the yield on a three-year zero-coupon corporate bond and the yield on a similar risk-free bond is 50 basis points. The corresponding spread for six-year bonds is 80 basis points. Assume a zero recovery rate. What is the risk-neutral probability of default between three and six years in a risk-neutral world?
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