The following represents two yield curves.
$\begin{array} { | l r r | }
\hline \text { Maturity } & \text { Pure Discount Treasury Yields } & \text { B-rated Carparate Band } \
\hline & & \text { Yields (Pure Discaun Bonds) } \

1 \text { year } & 3 \text { percent } & 6\text { percent }\
2 \text { year } & 6 \text { percent }& 10 \text { percent } \
20 \text { year } & 12 \text { percent }& 17 \text { percent } \
\hline
\end{array}$
-What is the implied probability of repayment on one-year B-rated debt?

Question

The following represents two yield curves.
 $\begin{array} { | l r r | } 
\hline \text { Maturity } & \text { Pure  Discount Treasury Yields } & \text { B-rated Carparate Band } \
\hline  & & \text { Yields (Pure Discaun Bonds) } \

1 \text { year  } & 3 \text { percent } & 6\text { percent }\
2 \text { year  } & 6 \text { percent }& 10 \text { percent } \
20 \text { year } & 12 \text { percent }& 17 \text { percent } \
\hline
\end{array}$
-What is the implied probability of repayment on one-year B-rated debt?

Quizplus · Accepted Answer

The implied probability of repayment is calculated using the formula: (1 + Treasury Yield) / (1 + Corporate Yield). For one-year B-rated debt: (1 + 0.03) / (1 + 0.06) = 0.9717 or 97.17 percent.

The Following Represents Two Yield Curves -What Is the Implied Probability of Repayment on One-Year B-Rated