Given an economy with two bonds, (1) a one-year, risk-free zero-coupon bond paying a principal of $1,000 and priced at $952.38 to yield 5% and (2) a oneyear risky zero-coupon bond with a .75 probability of paying $1,000 at the end of the year and a .25 probability of defaulting and paying only $100 from liquidation,

a. What would be the price of the risky bond if the market were risk neutral?

b. What would be the response of a risk-averse market if the risky bond were priced at its risk-neutral value?

c. What would be the response of a risk-loving market if the risky bond were priced at its risk-neutral value?