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Problem. 04: Assume a one-year Treasury strip is currently yielding 5.5 per cent and an AAA-rated discount bond with similar maturity is yielding 8.5 per

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Problem. 04: Assume a one-year Treasury strip is currently yielding 5.5 per cent and an AAA-rated discount bond with similar maturity is yielding 8.5 per cent. If the expected recovery from collateral in the event of default is 50 per cent of principal and interest, what is the probability of repayment of the AAA-rated bond? What is the probability of default? Solution

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