Question
A zero-coupon bond has par value $95 and one year to maturity, at which time it may default. From Merton's model, you estimate that the
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A zero-coupon bond has par value $95 and one year to maturity, at which time it may default. From Merton's model, you estimate that the risk-neutral probability of default to be 20% and the present value of recovery to be $51. Find percentage of par value that will be recovered in the event of default at maturity, given risk-free interest rate of 5%.
| a. | 56.44% | |
| b. | 51% | |
| c. | 55.37% | |
| d. | 53.68% |
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Contemporary Issues In Finance
Authors: Simon Grima, Frank Bezzina, Inna Romanova
1st Edition
1786359073, 978-1786359070
