Question: Consider the following information: Rating: AAA AA A BBB BB B CCC CCC Default probability : 0.00% 0.10% 0.20% 0.50% 2.20% 5.50% 12.20% 14.10% Beta

Consider the following information:

Rating:	AAA	AA	A	BBB	BB	B	CCC	CCC
Default probability:	0.00%	0.10%	0.20%	0.50%	2.20%	5.50%	12.20%	14.10%
Beta	0.01	0.02	0.03	0.1	0.15	0.25	0.3	0.5

The standard deviation of excess returns on a BB-rated bond is 5%. The standard deviation of excess market returns is 15%. Estimate the R-squared in a CAPM regression of the bond's excess returns on market excess returns. The R-squared is closest to:

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