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educatortech
educatortech, Statistical Analysis-expert
Category: General
Satisfied Customers: 5229
Experience:  M.S. M.A.
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7-You are considering purchasing a 3-year municipal bond

Customer Question

7-You are considering purchasing a 3-year municipal bond issued by the city of Chicago. The bond has a face value of $100,000 and pays an annual coupon of $5,000. The current interest rate is 2% per year. What expected present value would you place on the bond if the default rate is 1% per year?

8-What value would you place on the bond from question 7 if the default rate is 1% in the first year, 2% in the second year and 3% in the third year? The increasing probability of default results from the increasing difficulty of the city making the balloon payment of the principal in the final year.

Submitted: 1 year ago.
Category: Statistical Analysis
Expert:  educatortech replied 1 year ago.

Hello, my name is Greg.

I see this might be time sensitive.

Do you still need this answered?