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The risk-free rate is 5% per year and a corporate bond yields 6% per year. Assuming a recovery rate of 75% on the corporate bond
The risk-free rate is 5% per year and a corporate bond yields 6% per year. Assuming a recovery rate of 75% on the corporate bond and 0.8% risk premium for a risk-averse investor, what is the approximate market-implied one-year probability of default of the corporate bond?
a. 1%
b. 0.8%
c. 8%
d. 1.60%
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