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Consider a firm whose 1-year zero-coupon bonds currently yield 10.2%. The yield on 1-year zero-coupon Treasury bonds is 7.4%. Assume that when the firm defaults

Consider a firm whose 1-year zero-coupon bonds currently yield 10.2%. The yield on 1-year zero-coupon Treasury bonds is 7.4%. Assume that when the firm defaults bondholders expect to recover $2.00 on the dollar with probability 3/8 and $10.00 on the dollar with probability 5/8? Assume periodicity of 1. What is this firms implied probability of default?

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