During the recession in mid-2009, homebuilder KB Home had outstanding 5-year bonds with a yield to maturity of 8.1% and a BB rating. If corresponding risk-free rates were 2.6%, and the market risk premium was 5.4%, estimate the expected return of KB Home's debt using two different methods. How do your results compare? Note: the average loss rate for unsecured debt is about 60%. See annual default rates by debt rating here and average debt belas by rating and maturity here Data table TABLE 12.2 Annual Default Rates by Debt Rating (1983-2011)14 Rating: AAA AA A BBB BB B CCC CC-C Default Rate: Average In Recessions 0.0% 0.1% 0.2% 0.0% 1.0% 3.0% 0.5% 2.2% 3.0% 8.0% 5.5% 12.2% 16.0% 14.1% 48.0% 79.0% Source: "Corporate Defaults and Recovery Rates, 1920-2011," Moody's Global Credit Policy, February 2012. Data table - 15 TABLE 12.3 Average Debt Betas by Rating and Maturity By Rating Avg. Beta By Maturity A and above 15 Year 0.14 Source: S. Schaefer and I. Strebulaev, Risk in Capital Structure Arbitrage," Stanford GSB working - X