A fixed-income analyst is considering a one-year, zero coupon corporate bond. He is trying to estimate the minimum default risk premium that should be reflected in the yield spread over the risk-free rate (YTM corp bond - YTM risk free ). He sees that the probability of default of similarly rated corporate debt is 0.09 and that the average recovery if one occurs is $0.40 on the dollar. If the risk-free rate is 2.0 percent, the minimum default premium is closest to ________.
1) 813 basis points
2) 613 basis points
3) 421 basis points