1. Gertrude works as a credit analyst at DFL&T, a reputable rating agency. In order to get a sense of what the markets are thinking about Brazil she calls her buddy Wynthrop, a sovereign bond trader at Bartlays. Wynthrop told her that if Brazil does not default on its external debt, then Brazil's USD 10-year sovereign bond would trade at a spread of 500bp over Treasuries; and if Brazil defaulted, the spread would widen to 2,000. Wynthorp adds that the 10-year is currently trading at 800bp. Based on this information, what number should Gertrude use for the implied market probability of of a sovereign default by Brazil?

   	a.	50%
   	b.	20%
   	c.	25%
   	d.	80%