Question: AA bond yields 5% with a 0.3% default vs BB bond that yields 8% with a 3% expected default. If the recovery rate is 45%,

AA bond yields 5% with a 0.3% default vs BB bond that yields 8% with a 3% expected default. If the recovery rate is 45%, which bond gives the higher after default expected return?

A. AA

B. BB

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