Risk-free interest rate
Course:- Business Management
Reference No.:- EM131191851

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Suppose risk-free interest rate is 0.05. If there is one-year 5% coupon bonds with a face value of $100 and 10% default risk, show that the yield to maturity of this bond is higher than risk-free interest rate. Assume that if the bond defaults, their payment is 0.

Please express the answer as detailed as possible. Giving the definition of the term would be great. Thank you so much!

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