Moodys bond ratings are an important source of information for the risk that a company defaults on its debt. According to Moodys ratings: Bonds that are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. A sample of 1200 firms rated Ba found that 5.6% of these firms defaulted within a year.

a. Test the null hypothesis that the true defect rate is 5% against the alternative that it is different from 5%.

b. What is the pvalue for the test statistic in part a?

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