In? mid-2009, Rite Aid had? CCC-rated, 20-year bonds outstanding with a yield to maturity of 17.3%. At the? time, similar maturity Treasuries had a yield of 5%. Suppose the market risk premium is 4% and you believe Rite? Aid's bonds have a beta of 0.39. The expected loss rate of these bonds in the event of default is 53%.
a. What annual probability of default would be consistent with the yield to maturity of these bonds in? mid-2009?
b. In? mid-2015, Rite-Aid's bonds had a yield of 6.7 %, while similar maturity Treasuries had a yield of 1.4 %. What probability of default would you estimate? now?