Inmid-2012, Ralston Purina hadAA-rated, 10-year bonds outstanding with a yield to maturity of 1.75%.

a. What is the highest expected return these bonds couldhave?

b. At thetime, similar maturity Treasuries had a yield of 0.75%. Could these bonds actually have an expected return equal to your answer in part (a)?

c. If you believe RalstonPurina's bonds have 1.5% chance of default peryear, and that expected loss rate in the event of default is 47%, what is your estimate of the expected return for thesebonds?