During the recession in$$ mid$-2009,$ homebuilder KB Home had outstanding $6-$year bonds with a yield to maturity of $8\mathrm{.}5\%$ and a BB rating. If corresponding$$ risk$-$free rates were $3\mathrm{.}0\%,$ and the market risk premium was $5\mathrm{.}0\%,$ estimate the expected return of KB$$ Home's debt using two different methods. How do your results$$ compare? $($Click on the following icon in order to copy its contents into a spreadsheet.$)$

Annual Default Rates by Debt Rating

Source: "Corporate Defaults and Recovery Rates, $1920-2011,"$ Moody's Global Credit Policy, February

Note$$: the average loss rate for unsecured debt is about $60\%.$ See annual default rates by debt rating here LOADING... and average debt betas by rating and maturity here LOADING....

Question content area bottom

Part $1$

Considering the probability of$$ default, the expected return of the bond is

$$

enter your response here$\%.($Round to two decimal$$ places.$)$