Assume the Interest Rate in the Market for One-Year Zero-Coupon

question 32

Multiple Choice

Assume the interest rate in the market for one-year zero-coupon government bonds is i = 7.5 per cent and the rate for one-year zero-coupon grade BB bonds is k = 11.8 per cent. What is the implied probability of default on the corporate bond (round to two decimals) ?

• A) 3.85 per cent
• B) 4.00 per cent
• C) 96.00 per cent
• D) 96.15 per cent

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Definitions:

Clarity

The quality of being clear, understandable, and transparent in expression, thought, or presentation.

Tuberculosis

An infectious disease caused by the tubercle bacillus; pulmonary tuberculosis is a specific inflammatory disease of the lungs that destroys lung tissue.

Gram-positive

Referring to bacteria that retain the crystal violet dye in the Gram stain test, indicating a thick outer cell wall.

Gram-variable

Pertaining to bacteria that do not consistently stain either positive or negative in the Gram stain test, showing variability in cell wall structure.