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You may consider the assumptions of the Merton credit risk model hold. HERO Airways has a zero-coupon bond outstanding with a 1-year maturity and a
You may consider the assumptions of the Merton credit risk model hold. HERO Airways has a zero-coupon bond outstanding with a 1-year maturity and a face value per share of $30. The risk-free rate is 3% pa, continuously compounded. Its current price is $30. Suppose HERO Airwayss zero-coupon bond currently trades for a price of $97 per $100 par value. What is the credit spread implied by the price of the bond?
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