Q12 The Fly-By-Night Corporation has decided to raise money by issuing one-year bonds. Investors consider the bonds to have a 25% probability of default and an 80% recovery rate in the event of default (the investor loses the interest on his investment and 20% of the amount invested). The risk-free rate is 4%. If investors were risk-neutral, the promised yield on the bond would have to be ____ %. If instead investors were risk-averse and required a risk premium of 2% on the bonds, the promised yield would have to be _____%.

Group of answer choices

1) 5.3; 7.3

2) 12.0; 14.7

3) 4.0; 6.0

4) 12.0; 14.0