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Calculate cumulative probability of default

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Reference no: EM133068850

The following table summarizes yields for T-bonds and C-bonds respectively (do the calculations for four decimal places).

Bond Rates

1year rate

2 year rate

T-bond

5.15% pa

5.75% pa

C-bond

7.25% pa

8.55% pa

Number your answers:

Calculate cumulative probability of default for two-year corporate bond assuming that the probability of full payment in year 1 is same as in year 2.

Calculate one-year forward rates for bonds. 

Estimate the cumulative probability of corporate bond defaulting over the two year period (hint: use the forward rate in your calculation).

Reference no: EM133068850

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