What is the probability of default per semester implied

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Problem

Consider a corporate bond with face value $1,000, maturing in 2 years, 6% annual coupon rate, and semi-annual coupon payments. The fair (risk-free) discount rate that compensates investors is 4% per semester. Assume that when the corporation defaults, bondholders receive a recovery value equal to 40% of face value at the time of default. The market price of the bond is $940. (i) What is the probability of default per semester implied by the market price of the bond? Get the instant assignment help. (ii) What is the yield to maturity of this bond?

Reference no: EM133910267

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