In mid$-2009,$ Rite Aid had CCC$-$rated, $9-$year bonds outstanding with a yield to maturity of $17\mathrm{.}3\%.$ At the time, similar

maturity Treasuries had a yield of $2\%.$ Suppose the market risk premium is $4\%$ and you believe Rite Aid's bonds have a

beta of $0\mathrm{.}33.$ The expected loss rate of these bonds in the event of default is $54\%.$

a$.$ What annual probability of default would be consistent with the yield to maturity of these bonds in mid$-2009?$

b$.$ In mid$-2015,$ Rite$-$Aid's bonds had a yield of $6\mathrm{.}9\%,$ while similar maturity Treasuries had a yield of $1\mathrm{.}4\%.$ What

probability of default would you estimate now?

a$.$ What annual probability of default would be consistent with the yield to maturity of these bonds in mid$-2009?$

The required return for this investment is

$\%.($Round to two decimal places.$)$

The annual probability of default is

$\%.($Round to two decimal places.$)$

b$.$ In mid$-2015,$ Rite$-$Aid's bonds had a yield of $6\mathrm{.}9\%,$ while similar maturity Treasuries had a yield of $1\mathrm{.}4\%.$ What

probability of default would you estimate now?

The probability of default will be

$\%.($Round to two decimal places.$)$