1. Consider a one year corporate bond that has a 25% probability of default. The payoff on the bond is $1150 if the corporation does not default. The interest rate is 8%. If buyers of this bond are risk-neutral, this bond will sell for:

2. Holding risk constant, an investor earning 3.5% from a tax-exempt bond who is in a 32% tax bracket would be indifferent between that bond and a taxable bond with a ___% yield:

please show steps