Suppose that the LIBOR/swap curve is flat at 6% with continuous compounding and a five-year bond with
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Suppose that the LIBOR/swap curve is flat at 6% with continuous compounding and a five-year bond with a coupon of 5% (paid semiannually) sells for 90.00. How much would the bond be worth if it were a risk-free bond? What is the present value expected loss from defaults? How would an asset swap on the bond be structured? What is the asset swap spread that would be calculated in this situation?
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