From the Treasury strip yield curve, the current r...
From the Treasury strip yield curve, the current required yields on one- and two-year Treasuries are i1 = 4.65 percent and i2 = 5.50 percent, respectively. Further, the current yield curve indicates that appropriate one-year discount corporate bonds are yielding k1 = 8.5 percent, and two-year coporate bonds are yielding k2 = 10.25 percent. a. Calculate the one-year forward rate on the Treasuries and the corporate bond. b. Using the current and forward one-year rates, calculate the marginal probability of repayment on the corporate bond in years 1 and 2, respectively. c. Calculate the cumulative probability of default on the corporate bond over the next two years.