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You observe that the current interest rates for 1 - year T - strips and 1 - year corporate strips are 2 . 4 %

You observe that the current interest rates for 1-year T-strips and 1-year corporate strips are 2.4% and 6.5%, respectively. The rates for their corresponding 2-year strips are 3.2% and 9.8%, respectively. As a bank loan officer, you estimate that you can recover 60% from collateral of a loan in the event of default. What is the default probability of the loan in the first year?
A.9.62%
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