Question: Collingwood Corp is able to issue its 60 day commercial paper

Collingwood Corp. is able to issue its 60-day commercial paper at par with a promised yield of 9 percent per year. The current T-bill yield is 6 percent per year (or 1 percent for the 60-day period), which is also the expected return on the commercial paper, as there is some risk of default. If Collingwood were to default, investors would recover 80 percent of the face value of the debt. Based on this information, what is the probability that Collingwood will default on its commercial paper? Round to two decimals.

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  • CreatedFebruary 25, 2015
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