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Calculate the default risk premium

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Reference no: EM131916085

1. Consider a coupon bond with a $100 face value and a coupon payment equal to 3% of the face value per year.

a. If there is one year to maturity, find the yield to maturity if the price of the bond is $99.50.

b. If the risk-free rate is 2.25%, calculate the default risk premium.

2. A zero coupon bond with a face value of $100 has one year until maturity. There is a 99% chance you will receive the promised payment in 1 year. The only other possible outcome is getting $0 of the promised payment. If the risk-free rate is 2%, how much would a risk-neutral investor be willing to pay for this bond?

Reference no: EM131916085

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