In mid-2009, Rite Aid had CCC-rated,88-year bonds outstanding with a yield to maturity of 17.3%.At the time, similar maturity Treasuries had a yield of 2%. Suppose the market risk premium is 6% and you believe Rite Aid's bonds have a beta of 0.35. The expected loss rate of these bonds in the event of default is 58%.

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 6.8%, while similar maturity Treasuries had a yield of 1.5%.

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.)