Question: Consider a firm whose 1-year zero-coupon bonds currently yield 8.0% and 2-year zero-coupon bonds yield 13.2%. The Treasury yield on 1-year zero-coupon bonds is 5.2%

Consider a firm whose 1-year zero-coupon bonds currently yield 8.0% and 2-year zero-coupon bonds yield 13.2%. The Treasury yield on 1-year zero-coupon bonds is 5.2% and 2-year zero-coupon bonds is 7.4%. Assume that the recovery rate is zero and that all rates are annualized assuming periodicity of 1 (i.e., annual compounding). What is the firm's 2-year marginal probability of default?

(If your solution is 4.44% then enter "4.44" as the answer. Precision is 0.01+/- 0.02.)

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