Assume a one-year Treasury strip is currently yielding 5.5 percent and an AAA-rated discount bond with similar

Question:

Assume a one-year Treasury strip is currently yielding 5.5 percent and an AAA-rated discount bond with similar is yielding 8.5 percent.
a. If the expected recovery from collateral in the event of default is 50 percent of principal and interest, what is the probability of repayment of the AAA-rated bond? What is the probability of default?
b. What is the probability of repayment of the AAA-rated bond if the expected recovery from collateral in the case of default is 94.47 percent of principal and interest? What is the probability of default?
c. What is the relationship between the probability of default and the proportion of principal and interest that may be recovered in the case of default on the loan?
Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...