The market trades a 1-year bond at 50bp credit spread, and a 3-year bond at 60bp. In the USD market conditions as of fall 2001 and with a recovery rate of 50%, what is the implicit probability of default before year 3? a. 1% b. 2% (ANS) c. 3% (ANS) d. 4% At the moment, I have not seen a problem of this type before, so any equations/tips appreciated. Also, don't know why the answer is both b and c. Any thoughts?