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A company has 2 and 3 year bonds outstanding, each providing a coupon of 6% per year payable annually. The yields on the bonds expressed
A company has 2 and 3 year bonds outstanding, each providing a coupon of 6% per year payable annually. The yields on the bonds expressed with continuous comounding are 8.0% and 8.6% respectively. Risk free rates are 3.5% for all maturities. The recovery rate is 30%. Defaults can take place half way through each year. Estimate the risk-neutral default rate each year.
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