Question
A 2 year zero coupon corporate bond with notional N = 1000 is traded 895.5. The risk free interest rate r is 2%. Assume the
A 2 year zero coupon corporate bond with notional N = 1000 is traded 895.5. The risk free interest rate r is 2%. Assume the bond default recovery rate R is 40%, and assume r, R and default (hazard) rate are all constant, what is the fair value of a 5 year zero coupon bond with the same seniority (i.e., R) by the same issuer?
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Intermediate Accounting Volume 1
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy
12th Canadian edition
978-1119496496
