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Calculate the present value of the collateral

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Question - Consider a Brady bond issued by Mexico with 7 years left to maturity, paying a coupon of 11%. Only the par value is collateralized by American Treasury bonds. Assume that the U.S. spot rate is 4% for all maturities. The face value is $100 and the price of the bond is 95.

1) Calculate the present value of the collateral.

2) Write down the equation that determines the (stripped) yield-to-maturity of the bond.

3) Write down the equation that estimates Mexican government's default probability p every period.

Reference no: EM132964179

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