Question: The spread between the yield on a 2 - year corporate bond and the yield on a similar risk - free bond is 2 7

The spread between the yield on a 2-year corporate bond and the yield on a
similar risk-free bond is 275 basis points. The recovery rate is 40%.
i) Estimate the average hazard rate over the 2-year period.
ii) Compute the probability that the company issuing the bond will de-
fault in one year from now.

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