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Consistent with the yield to maturity of bonds

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In? mid-2009, Rite Aid had? CCC-rated, 20-year bonds outstanding with a yield to maturity of 17.3%. At the? time, similar maturity Treasuries had a yield of 5%. Suppose the market risk premium is 4% and you believe Rite? Aid's bonds have a beta of 0.39. The expected loss rate of these bonds in the event of default is 53%.

a. What annual probability of default would be consistent with the yield to maturity of these bonds in? mid-2009?

b. In? mid-2015, Rite-Aid's bonds had a yield of 6.7 %, while similar maturity Treasuries had a yield of 1.4 %. What probability of default would you estimate? now?

Reference no: EM132122786

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