Course: Finance - Bullet Bonds The U.S. Government issued a bullet bond with 2 annual coupons at 5% compounded annually and trading on the stock market at 80% of its face value. The Government of Country 1 issued a bond identical to the above but which trades on the stock market at 70% of its face value. The Government of Country 2 issued a bond identical to the previous one but whose transaction IRR is 31%. Assume that: - The 1-year and 2-year spot interest rates are equal. - The probability of default (non-payment) of both coupons for the US bond is zero (0). - The probability of default (non-payment) of the first coupon for the bonds of the 2 countries is zero (0). - In case of default, the recovery rate is zero (0). With the above data, a) determine the probability of default (non-payment) that the market assigns to the second coupon of the bonds of each of the 2 countries. Now assume that the IRR of the US bond is 20% per annum compounded continuously and that the probability of default (non-payment) of the second coupon of the bonds of the countries remains the same as before. Based on this, b) determine the price at which the bonds of both countries trade.