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Consider a 1-year zero-coupon bond that is subordinated and has a CCC rating. The historical recovery rate on subordinated bonds has been 37.9% and the
Consider a 1-year zero-coupon bond that is subordinated and has a CCC rating. The historical recovery rate on subordinated bonds has been 37.9% and the historical default probability on CCC-rated bonds has been 17.6%. The promised yield on a 1-year zero-coupon Treasury bond is 1.6%. All rates are annualized assuming periodicity of 1 (i.e. annual compounding). What should be the promised yield on the CCC-rated bond based on the historical information provided?
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