The spread between the yield on a 5-year bond issued by a company and the yield on
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The spread between the yield on a 5-year bond issued by a company and the yield on a similar risk-free bond is 80 basis points. Assume a recovery rate of 40%. Estimate the average default intensity per year over the 5-year period. If the spread is 70 basis points for a 3-year bond, what do your results indicate about the average default intensity in years 4 and 5?
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