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Firm XYZ has three zero - coupon bonds outstanding. Bond A has a maturity of 1 year and a yield of 3 . 7 %

Firm XYZ has three zero-coupon bonds outstanding. Bond A has a maturity of 1 year and a yield of 3.7%. Bond B has a maturity of 2 years and a yield of 4.8%. Bond C has a maturity of 3 years and a yield of 5.4%. Zero-coupon Treasury securities with maturities of 1,2, and 3 years have yields of 3.2%,3.8%, and 4.0% respectively. Assume that if firm XYZ defaults, bondholders of A, B, and C will recover nothing.
a. Calculate firm XYZs annual marginal default probabilities for years 1,2, and 3.(2 pts.)
b. Calculate firm XYZs cumulative default probabilities for years 1,2, and 3.(0.5 pts.)
c. Calculate bond Cs yield spread. (0.5 pts.)
d. Assume that firm XYZ is about to issue a senior secured bond that pays no coupons and matures in 1 year. The expected recovery rate on this bond is $0.35 on the dollar. Bases on the implied default probability you calculated earlier, what should be the required yield on this new bond? (1 pt.)

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