Suppose We Have a Zero-Coupon Bond That Pays $100 After

Multiple Choice

Suppose we have a zero-coupon bond that pays $100 after one year if the issuing firm is not in default. If the firm is in default the recovery rate is 50%. The simple risk free interest rate for one year is 3% and the risk-neutral probability that the firm defaults is 5%. What is today's fair price for this bond?

A) $87.55
B) $89.23
C) $92.59
D) $94.66