Question: The current 1 - year yield on a treasury bill is 2 . 5 % and the current 1 - year yield on a BB

The current 1-year yield on a treasury bill is 2.5% and the current 1-year yield on a BB-rated bond of equivalent risk to a prospective borrower is 6.75%. The loan has a marginal probability of default in year 2 of 5.35%. What is the cumulative probability of default over the 2 years?

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