Question

year 3 percent 6 percent 2 year 6 percent 10 percent 20 year 12 percent 17 percent What is the implied probability of repayment on the one-year B-rated debt (i.e., in the first year)

Answer 1

Answer: 97.17%

Explanation:

The implied probability of repayment on the one-year B-rated debt in the first year can be calculated by the formula:

= (1 + Pure discount treasury yield in 1 year) / (1 + Corporate bond yield in 1 year)

= (1 + 3%) / ( 1 + 6%)

= 0.9716981132

= 97.17%