 = probability of default</p>
<p>(1 + r) = the promised return on a risk-free investment</p>
<p>(1 + k) = the promised return on a risky investment</p>
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If the risk-free rate on a 1-year Treasury bill (T-bill) is 2.5 percent and the implied probability of default on a 1-year zero-coupon corporate note is 4.0 percent, the promised rate of return on the corporate note is closest to: A. 6.50%. B. 6.77%. C. 6.25%. D. 6.11%. |