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Estimate the risk-neutral default rate year

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Reference no: EM132707618

A company has one- and two-year bonds outstanding, each providing a coupon of 5% per year payable annually. The yields on the bonds (expressed with continuous compounding) are 3.0% and 3.5%, respectively. Risk-free rates are 2.0% for all maturities. The recovery rate is 50%. Defaults can take place halfway through each year. Estimate the risk-neutral default rate each year.

Reference no: EM132707618

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