Find risk-neutral probability of default during each year

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Reference no: EM132061631

Suppose the risk-free rate yield curve is flat at 1.5% with annual compounding. 1-year, 2-year, 3-year, and 4-year bonds yield are 2.643%, 3.063%, 3.329%, and 3.529% respectively with annual compounding. All of the bonds pay 5% annual coupons. Assume that in case of default, the recovery rate is 30% of principal, with no payment of accrued interest. Find the risk-neutral probability of default during each year.

Reference no: EM132061631

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