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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 year Tstrips and year corporate strips are and respectively. The rates for their corresponding year strips are and respectively. As a bank loan officer, you estimate that you can recover from collateral of a loan in the event of default. What is the default probability of the loan in the first year?
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