Rite Aid has CCC-rated, 10 -year bonds outstanding with a yield to maturity of 18.5%. Risk-free treasury bonds with similar maturity have a yield of 3.5%. Suppose the market risk premium is 6% and you believe Rite Aid's bonds have a beta of 0.39 . The expected loss rate of these bonds in the event of default is 55%. a) Using the CAPM, what is the expected return (i.e., cost of debt capital) of Rite Aid's debt? b) Given your answer in part (a), what annual probability of default ( p ) would be consistent with the yield to maturity of these bonds? c) Rite-Aid's bonds now have a yield of 6.1%, while similar maturity Treasuries have a yield of 2.1%. What is the expected return on Rite Aid's debt now? Which probability of default (p) would you estimate now? (Hint: assume that the market risk premium, the beta, and the loss given default of Rite Aid's bonds are the same as in parts (a) and (b).)