Multiple Choice
A zero coupon bond with a maturity of one-year pays $1,000 if the issuing firm is not in default. If the firm is in default, the recovery rate is 35%. The risk-free interest rate for one year is 5% (in simple terms with annual compounding) and the risk-neutral probability that the firm defaults is 20%. What is todays price for this bond?
A) $781.28
B) $828.57
C) $885.71
D) $912.92
Correct Answer:
Verified
Correct Answer:
Verified
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