Estimate the risk neutral default rate each year

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Reference no: EM131239800

A company has 1- and 2-year bonds outstanding, each providing a coupon of 8% per year payable annually. The yields on the bonds (expressed with continuous compounding) are6.0% and 6.6%, respectively.

Risk-free rates are 4.5% for all maturities. The recovery rate is 35%. Defaults can take place halfway through each year. Estimate the risk-neutral default rate each year.

Reference no: EM131239800

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