Question: Assume that the cumulative default probability (calculated from historical data) for a given bond is 3% and that the credit spread 120 bps (over the

Assume that the cumulative default probability (calculated from historical data) for a given

bond is 3% and that the credit spread 120 bps (over the risk free rate). Assume also that the

recovery rate for the bond is 45%. What is the Expected Excess Return implied by these data?

Briey explain how it is computed .

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