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A defaultable bond has scheduled annual coupons of $900 and a scheduled principal repayment of $10,000 in 5 years. The simple annual risk free rate
A defaultable bond has scheduled annual coupons of $900 and a scheduled principal repayment of $10,000 in 5 years. The simple annual risk free rate is 4%, the annual probability of default (PD) is 3%, and the loss given default (LGD) is 65%.
a) What is the approximate yield to maturity (YTM) assuming there is no risk premium k?
b) What is the approximate expected present value of the bond based on the approximate YTM?
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