What is the price of this risky, 2-year maturity, annual-pay 5% coupon bond with a face value of 100 in an economy with a flat 7%/year annually- compounded yield curve? As an annual pay bond there are two points in time when the bond can default: (i). at the end of the first year when the first coupon is due to be paid and (ii). at the end of the second year when the second coupon and principle are due to be paid. The amounts paid in the events of default are: Default at the end of the first year: If the bond defaults at the end of the first year you get 40% of the first coupon and 40% of the face value; both at the end of the first year. You do not get the second coupon. Default at the of the second year: If the bond defaults at the end of the second year you get 40% of the end of the second year second coupon, 40% of the face value; both at the end of the second year. Assume the probability of default at the end of each year is 20%