Estimate the semiannual default probabilities

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Reference no: EM131539581

Suppose a three-year corporate bond provides a coupon of 8% per year payable semiannually and has a yield of 6% (expressed with semiannual compounding). The yields for all maturities on risk-free bonds is 4% per annum. Assume that defaults can take place every six months (immediately before a coupon payment) and the recovery rate is 40%. Estimate the semiannual default probabilities assuming the unconditional default probabilities are the same on each possible default date.

Reference no: EM131539581

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