4. Consider a four-year fixed-rate bond with 8% annual coupon and $1000 face value. The issuer is classified as "Rating 2". The transition matrix is given in the table below. From/to Rating 1 Rating 2 Rating 3 Default Rating 1 92% 4% 3.5% 0.5% Rating 2 6% 86% 7% 1% Rating 3 6% 9% 83% 2% Assume that the zero-coupon curve is flat at 5% and that issuers falling into different rating classes pay the following premia, which are constant for all maturities: Rating 1 Rating 2 Rating 3 0.35% 0.62% 0.83% Based on the above and assuming that the bond estimated recovery rate is 60%, compute the probability distribution of the future values of the bond after one year. Rating Probability Value Rating 1 Rating 2 Rating 3 Default