Question
Suppose a Treasury bond costs $100 and promises a payment of $105 in one year. A bond from the Acme Corporation costs $100 and promises
Suppose a Treasury bond costs $100 and promises a payment of $105 in one year. A bond from the Acme Corporation costs $100 and promises $107 in a year. Assume that Acme pays the $107 with probability p. With probability 1 - p, Acme defaults and pays nothing. What are likely values of p? Explain.
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Economics Principles and Policy
Authors: William J. Baumol, Alan S. Blinder
12th edition
978-0538453677, 538453672, 978-0538453622, 538453621, 978-0538453653
