There is a 0.5% probability of default by the year-end on a one-year bond issued at par by a particular corporation. If the corporation defaults, the investor will not get anything. Assuming that a default-free bond exists with identical cash flows and liquidity, and the one-year yield on this bond is 4%.
a. What yield should be required by risk-neutral investors on the corporate bond?
b. What should the credit spread be?

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The Answer of There is a 0.5% probability of default by the year-end on a one-year bond issued at par by a particular corporation. If the corporation defaults, the investor will not get anything. Assuming that a default-free bond exists with identical cash flows and liquidity, and the one-year yield on this bond is 4%.
a. What yield should be required by risk-neutral investors on the corporate bond?
b. What should the credit spread be?

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