In mid-2012, Ralston Purina had AA-rated, 10-year bonds outstanding with a yield to maturity of 1.61%.

a. What is the highest expected return these bonds could have?

b. At the time, similar maturity Treasuries had a yield of 0.61%. Could these bonds actually have an expected return equal to your answer in part (a)?

c. If you believe Ralston Purina's bonds have 0.8% chance of default per year, and that expected loss rate in the event of default is 47%, what is your estimate of the expected return for these bonds?

Round to 2 decimal places.