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(C) The nominal policy rate is 1.5%. The market rate on a AAA corporate bond is 7%. Find the probability of default for such
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Answer #1

Let the probability of default be pd
Hence,
(1+1.5%)=(1+7%)*(1-pd)+0*pd
=>pd=1-(1+1.5%)/(1+7%)
=>pd=5.14%

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(C) The nominal policy rate is 1.5%. The market rate on a AAA corporate bond is 7%. Find the probability of default...
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