Consider the following information about a corporate bond:

Classification

AAA

AA

A

BBB

BB

B

CCC

Average default rate

0.0%

0.1%

0.2%

0.5%

2.2%

5.5%

12.2%

Neglect rate in recession

0.0%

1.0%

3.0%

3.0%

8.0%

16.0%

48.0%

Average beta

0.05

0.05

0.05

0.10

0.17

0.26

0.31

Wyatt Oil has issued a bond with a maturity of seven years, a yield to maturity of 7.0% and a BBB credit rating. The corresponding risk-free interest rate is 3% and the market's risk premium is 5%. Assuming that the state of the economy is normal, what is the expected yield on Wyatt Oil's debt:

Choose one:

A. 3.0%

B. 3.5%

C. 4.9%

D. 5.5%