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

18-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

6%

and you believe Rite Aid's bonds have a beta of

0.37.

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

7.3%,

while similar maturity Treasuries had a yield of

1.3%.

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

nothing%.

(Round to two decimal places.)