Use the following information to answer the$$ question$($s$)$ below.

Consider the following information regarding corporate$$ bonds:

Rating

AAA

AA

A

BBB

BB

B

CCC

Average Default Rate

$0\mathrm{.}0\%$

$0\mathrm{.}1\%$

$0\mathrm{.}2\%$

$0\mathrm{.}5\%$

$2\mathrm{.}2\%$

$5\mathrm{.}5\%$

$12\mathrm{.}2\%$

Recession Default Rate

$0\mathrm{.}0\%$

$1\mathrm{.}0\%$

$3\mathrm{.}0\%$

$3\mathrm{.}0\%$

$8\mathrm{.}0\%$

$16\mathrm{.}0\%$

$48\mathrm{.}0\%$

Average Beta

$0\mathrm{.}05$

$0\mathrm{.}05$

$0\mathrm{.}05$

$0\mathrm{.}10$

$0\mathrm{.}17$

$0\mathrm{.}26$

$0\mathrm{.}31$

Wyatt Oil has a bond issue outstanding with seven years to$$ maturity, a yield to maturity of$7\mathrm{.}0\%,$ and a BBB rating. The$$ bondholders' expected loss rate in the event of default is$70\%.$ Assuming a normal economy the expected return on Wyatt$$ Oil's debt is closest$$ to:

Question content area bottom

Part $1$

A$.$

$4\mathrm{.}9\%$

B$.$

$3\mathrm{.}0\%$

C$.$

$3\mathrm{.}5\%$

D$.$

$6\mathrm{.}7\%$