In mid-2009, Roll Aid had CCC-rated, 6-year bonds outstanding with a yield to maturity of 17.5%. At the time, similar maturity Treasuries had a yield of 3.5%. Suppose the market risk premium is 6% and you believe Roll Aids bonds have a beta of 0.30. The expected loss rate of these bonds in the event of default is 60%.

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

2. In mid-2018, Roll Aids bonds had a yield of 10%, while similar maturity Treasuries had a yield of 2.0%. What probability of default would you estimate now?