The Isabelle Corporation rents prom dresses in its stores across the southern United

States. It has just issued a four-year, zero-coupon corporate bond with face value $100.

There is a 25% probability of default. In case of default, the bondholder would recover

75% of the face value of the bond. The expected return, adjusted for the risk of the bond,

is 4%.

a)Find the price of the bond.

b)Find the yield to maturity of the bond. Discuss your result.