Hi,

Can you please help me with the following question

As a manager of a bond portfolio you note that one of your investments, a corporate bond with one year to maturity, has an implied YTM of 34.6%. The bond has a coupon rate of 5.3% and until recently was trading with a YTM of 7.4%. What is the implicit probability that the bond will default and repay only 60% of capital and no coupon at maturity? Comment on the reliability of this calculation.

Thanks very much in advance!