7-You are considering purchasing a 3-year municipal bond
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.
Hello, my name is Greg.I see this might be time sensitive.Do you still need this answered?