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The spread on a one-year BBB-rated bond relative to the risk- free Treasury of similar...

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Finance

The spread on a one-year BBB-rated bond relative to the risk- free Treasury of similar maturity is 2%. It is estimated that the contribution to this spread by all noncredit factors (e.g., liquidity risk, taxes) is 0.8%. Assuming the recovery rate for the underlying credit is 60%, what is, approximately, the implied default probability for this bond? USE THIS FORMULA:

= + (1 ) +rp (risk premium)

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