Question
A one-year zero-coupon bond X will pay either $1,000 (par value) or $450 (default value) at maturity. You observe that this bond currently trades at
A one-year zero-coupon bond X will pay either $1,000 (par value) or $450 (default value) at maturity. You observe that this bond currently trades at $890. Assuming risk-free rate of return to be zero, you have INSUFFICIENT information to calculate which of the following?
a. The risk-neutral probability of default
b. The physical probability of default
c. The bond's promised yield to maturity
d. The percentage of par value recovered in default
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Financial Management Principles And Applications
Authors: Sheridan Titman, John Martin
14th Global Edition
1292349824, 978-1292349824
