Three year corporate bond with a coupon of 7% per year payable semiannually has a yield of 5% (expressed with semiannual compounding). The risk-free yield for all maturities is 4% (expressed with semiannual compounding). Defaults can take place every six months immediately prior to coupon payment, recovery rate is 45%.

How do you determine the default-free value as give below?

Time	Default Probability	Recovery Amount ($)	Default-Free Value ($)	Loss ($)	Discount Factor	PV of Expected Loss ($)
0.5	Q	45	110.57	65.57	0.9802	64.27
1	Q	45	108.38	63.38	0.9608	60.90
1.5	Q	45	107.76	62.76	0.9418	59.11
2	Q	45	105.63	60.63	0.9231	55.97
2.5	Q	45			0.9048
3	Q	45			0.8869