Calculate the value of a risky corporate bond using the risk neutral valuation method. Assume that the risk free rate is 4% per period and that a period is defined as six month (semi-annual compounding). The bond has a face value of 100 payable in two periods from now, and pays a 5% coupon payment at the end of the first and the second period. A corporate bond can be viewed as a derivative of the assets of the issuing company. Denote the value of the companys assets (above the node) and the cash pay-os of the bond (below the node)

This means that the bond is risky in the sense that the principal may not be returned in period 2, and that the coupon payment in period 2 may not be paid. The coupon in period 1 is risk-free (i.e. we assume the company has set aside funds to cover this). What is the present value of the bond?