A 10 year, $2,000 bond for sale on 15 October 2020. The bond carries coupon rate at r (2) = 8% payable semi-annually and will mature at par. Find the purchase price to yield r (2) = 10% if there is 5% chance that the coupon payment will default in any 6 months after which no more payments would be received?

[Total: 10 marks] A 10 year, $2,000 bond for sale on 15 October 2020. The bond carries coupon rate at r(2) = 8% payable semi-annually and will mature at par. Find the purchase price to yield r(2) = 10% if there is 5% chance that the coupon payment will default in any 6 months after which no more payments would be received