In mid-2009, Rite Aid had CCC-rated, 10-year bonds outstanding with a yield to maturity of 17.3 %. At the time, similar maturity Treasuries had a yield of 5 %. Suppose the market risk premium is 5 % and you believe Rite Aid's bonds have a beta of 0.32. The expected loss rate of these bonds in the event of default is 55 %.

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 7.3 %, while similar maturity Treasuries had a yield of 1.7 %. What probability of default would you estimate now?