[Note: Assume that all coupons are semi-annual in nature and interest rates are semi-annually compounded as well] Eastfield Properties LLC has a number of bond issues outstanding and cash flows have been weak since the pandemic fundamentally changed retail shopping behavior. Now it is November 2020 and one of the bonds is due in 3 months. There is a high chance that the firm will be unable to refinance the bond and default on all debt obligations. Another bond (8.50% coupon; $1,000 face value) was issued in 2017 and is not due until November 2024 but the risk of default is reflected in its yield to maturity of currently 24.125%. A) What is the current price of this bond? $ If the firm survives the next few months without renegotiation, then the risk of default would sink and this would be reflected in a lower YTM of 14.5% B) Re-compute the price of our bond price under this assumption: $ The company has internally discussed the idea to renegotiate the terms of all outstanding bonds to avoid default. The maturity of our bond would be extended until November 2027 and the principal of the bond would be cut to $600. But as a sweetener, the coupon would be drastically increased to 14.00%. In this scenario, our bond would be replaced with the new, extended bond and the first coupon would be paid when the original bond is due for its next payment, i.e. in exactly 6 months. C) Compute the value of this replacement bond today and assume the same new discount rate of 14.5% to reflect the somewhat lower risk of default after the renegotiation. $ Today's market price (your answer in part A) reflects the possibility of these two outcomes with probability p, bondholders will be forced to accept the new bond instead of the original one and with probability 1-p, the firm is able to refinance and our bond pays out as originally scheduled. D) What is the default probability that is implied by the current market price of our bond? [Note: Assume that all coupons are semi-annual in nature and interest rates are semi-annually compounded as well] Eastfield Properties LLC has a number of bond issues outstanding and cash flows have been weak since the pandemic fundamentally changed retail shopping behavior. Now it is November 2020 and one of the bonds is due in 3 months. There is a high chance that the firm will be unable to refinance the bond and default on all debt obligations. Another bond (8.50% coupon; $1,000 face value) was issued in 2017 and is not due until November 2024 but the risk of default is reflected in its yield to maturity of currently 24.125%. A) What is the current price of this bond? $ If the firm survives the next few months without renegotiation, then the risk of default would sink and this would be reflected in a lower YTM of 14.5% B) Re-compute the price of our bond price under this assumption: $ The company has internally discussed the idea to renegotiate the terms of all outstanding bonds to avoid default. The maturity of our bond would be extended until November 2027 and the principal of the bond would be cut to $600. But as a sweetener, the coupon would be drastically increased to 14.00%. In this scenario, our bond would be replaced with the new, extended bond and the first coupon would be paid when the original bond is due for its next payment, i.e. in exactly 6 months. C) Compute the value of this replacement bond today and assume the same new discount rate of 14.5% to reflect the somewhat lower risk of default after the renegotiation. $ Today's market price (your answer in part A) reflects the possibility of these two outcomes with probability p, bondholders will be forced to accept the new bond instead of the original one and with probability 1-p, the firm is able to refinance and our bond pays out as originally scheduled. D) What is the default probability that is implied by the current market price of our bond