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Problem 1.4 Suppose that the company XYZ has a hazard rate of 5%. The risk-free interest rate is 3.5%. i) What is the probability that
Problem 1.4 Suppose that the company XYZ has a hazard rate of 5%. The risk-free interest rate is 3.5%. i) What is the probability that the corporation defaults within one year? ii) Assume that a bond issued by the company has zero recovery rate R= 0%. The bond pays a coupon 4.0% once a year, and the bond maturity is 5 years from today. There is a total of 5 coupons paid. What is the price of this bond? Assume bond notional $100
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