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
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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The Legal Environment of Business A Critical Thinking Approach
Authors: Nancy K Kubasek, Bartley A Brennan, M Neil Browne
6th Edition
978-0132666688, 132666685, 132664844, 978-0132664844
