You are currently doing research on Annex Corporation (symbol: ANX), a levered firm that appears to be financially distressed. Your goal is to use bond prices for ANX to infer both the probability that the firm goes into default and the estimated bond repayment in the event of default.

a) Bond ANX.B currently has a price $850, one year until maturity, a promised cash flow of $1,050 next year, and an expected return of 6 percent. If ANX defaults, then Bond ANX.B pays nothing. What is the probability of default implied by this information?