Assume the Interest Rate in the Market for One-Year Zero-Coupon

Multiple Choice

Assume the interest rate in the market for one-year zero-coupon government bonds is i = 7.5 per cent and the rate for one-year zero-coupon grade BB bonds is k = 11.8 per cent. What is the implied probability of default on the corporate bond (round to two decimals) ?

A) 3.85 per cent
B) 4.00 per cent
C) 96.00 per cent
D) 96.15 per cent