The Following Represents Two Yield Curves -What Is the Expected Probability of Default in Year 2

question 99

Multiple Choice

The following represents two yield curves. $$\begin{array} { | l | c | c | } \hline \text { Maturity } & \begin{array} { c } \text { Pure Discount } \\\text { Treasury Yields }\end{array} & \begin{array} { c } \text { B-rated Corporate Bond Yields } \\\text { (Pure Discount Bonds) }\end{array} \\\hline 1 \text { year } & 3 \text { percent } & 6 \text { percent } \\\hline 2 \text { year } & 6 \text { percent } & 10 \text { percent } \\\hline 20 \text { year } & 12 \text { percent } & 17 \text { percent } \\\hline\end{array}$$
-What is the expected probability of default in year 2 of two-year maturity B-rated debt?

• A)2.83 percent.
• B)3.00 percent.
• C)4.43 percent.
• D)2.68 percent.
• E)5.00 percent.

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