Assume a bank can invest in a government bond at a risk-free rate of 3.69%. Alternatively, it can invest in a corporate bond with a default probability of 7%. If the issuer defaults, the bank expects to recover 60% of the investment. A risk-neutral bank would be indifferent between investing in the government bond and the corporate bond if the corporate bond offers a rate of __________%

Answer rating: 100% (QA)

SOLUTION The government bond offers a riskfree rate of 369 The corporate bond has a default p... View the full answer