8. You are considering buying a risky bond. The bond has a $1,000 face value, a 2-year maturity,

and a coupon rate of 5%. You believe the probability the company will survive to pay off the

bond is 96%. You also believe there is a 4% probability the company will default within the first

2 months, in which case you will be able to recover 50% of the bond's face value at the end of

year 2. The bond is selling for $900.

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