In mid-2009, Rite Aid had CCC-rated,

15-year

bonds outstanding with a yield to maturity of

17.3%.

At the time, similar maturity Treasuries had a yield of

4%.

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

50%.

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

Question content area bottom

Part 1

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

5.605.60%.

(Do not round until the final answer. Then round to two decimal places.)

Part 2

The annual probability of default is

enter your response here%.

(Do not round until the final answer. Then round to two decimal places.)