What the yellow bricks ltd zero-coupon bond price

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Question - The zero-coupon US treasury note with 2 years of maturity and $100 face value is traded at $80 today. Yellow Bricks Ltd has a 40% probability of going bankrupt. In case of bankruptcy, 50% of par value will be recovered with 20% of recovery probability. The spread between the expected zero rates of the two bonds is 5%, i.e., the risky bond of Yellow Bricks Ltd has 5% higher expected annualized rate of return. What should be the Yellow Bricks Ltd's 2-year zero-coupon bond price for $100 par value, up to two decimal places?

Reference no: EM132955950

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