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  1. business
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  3. assume a corporate bond with a $1000 face value ma

Assume a corporate bond with a $1000 face value matures 5 years and 7 months...

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Accounting

Assume a corporate bond with a $1000 face value matures 5 years and 7 months from today and has an
annual coupon rate of 8% paid semiannually. There is a 10% chance that the issuer will default at
maturity. If the firm defaults, it will pay 80% of what is promised (final coupon + face value) at maturity.
Treasuries with the same maturity earn a yield to maturity of 2% and investors in these corporate bonds
demand a 3% risk premium over the current rate on Treasuries (thus requiring an expected return of
5%) to compensate for the risk they face (All rates are APRs with semiannual compounding).
Calculate the clean price of the bond.

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