Q: Suppose that a five-year corporate bond with a principal of 100 provides acoupon of 6% per annum (paid semiannually) and that the yield on the bond is 7%

per annum (with continuous compounding). The yield on a similar risk-free bond is5% (again with continuous compounding).

Q: Suppose that a five-year corporate bond with a principal of 100 provides a coupon of 6% per annum (paid semiannually) and that the yield on the bond is 7% per annum (with continuous compounding). The yield on a similar risk-free bond is 5% (again with continuous compounding). 5 A: The yields imply that the price of the corporate bond is 95.34 and the price of the riskfree bond is 104.09. 10 How to calculate the red numbers (95.34 104.09 and the column of Default-free value106.73-103.46)