Estimate the risk-neutral default rate each year

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A company has issues one- and two- year bonds providing 8% coupons, payable annually. The yields on the bonds (expressed with continuous compounding) are 6% and 6.6%, respectively. Risk-free rats are 4.5% for all maturities. The recovery rate is 35%. Defaults can take place halfway through each year. Estimate the risk-neutral default rate each year.

Reference no: EM13814641

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