In mid$-2012,$ Ralston Purina had AA$-$rated, $10-$year bonds outstanding with a yield to maturity of $2\mathrm{.}34\%.$

a$.$ What is the highest expected return these bonds could have?

b$.$ At the time, similar maturity Treasuries had a yield of $1\mathrm{.}34\%.$ Could these bonds actually have an expected return

equal to your answer in part $($a$)?$

c$.$ If you believe Ralston Purina's bonds have $0\mathrm{.}6\%$ chance of default per year, and that expected loss rate in the event

of default is $54\%,$ what is your estimate of the expected return for these bonds?

a$.$ What is the highest expected return these bonds could have?

The highest expected return these bonds could have is

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

b$.$ At the time, similar maturity Treasuries had a yield of $1\mathrm{.}34\%.$ Could these bonds actually have an expected return

equal to your answer in part $($a$)?($Select the best choice below.$)$

A$.$ No$,$ if the bonds are risk$-$free, the expected return equals the risk$-$free rate, and if they are not risk$-$free the

expected return is less than the yield.

B$.$ Yes, the yield to maturity is the maximum expected return you can expect.

C$.$ Yes, if the bonds are risky enough, that is if the probability of default is high enough.

D$.$ Yes, because the reasons given in both A$.$ and B$.$ are true.

c$.$ If you believe Ralston Purina's bonds have $0\mathrm{.}6\%$ chance of default per year, and that expected loss rate in the event

of default is $54\%,$ what is your estimate of the expected return for these bonds?

The estimated expected return for these bonds will be

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