A company has one- and two-year bonds outstanding, each providing a coupon of 6% per year...

A company has one- and two-year bonds outstanding, each providing a coupon of 6% per year payable annually. The yields on the bonds (expressed with continuous compounding) are 3.0% and 3.6%, respectively. Risk-free rates are 2.5% for all maturities. The recovery rate is 35%. Defaults can take place half way through each year. Estimate the risk-neutral default probability each year.

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