Maturity	Treasury Yields	B-rated Corporate Bond Yields
1 year	3 percent	6 percent
2 year	6 percent	10 percent
20 year	12 percent	17 percent

1. b) What interest rate is expected on a one-year B-rated corporate bond in one year? (Hint: Use the

implied forward rate.) (3 points)

2. c) What spread is expected between the one-year maturity B-rated bond and the one-year Treasury

bond in one year? (3 points)

3. d) What is the expected probability of default in year 2 of two-year maturity B-rated debt? (3 points)
4. e) What is the probability that two-year B-rated corporate debt will be fully repaid? (3 points)