7. What is the fundamental value of this corporate bond N=3, I/Y = 1.25%, PMT= $55, FV = $1,000 Probability of default on each cash flow is 2.5% You get $0 PMT if default occurs Use expected value and risk free rate (1.25%) to solve
7. What is the fundamental value of this corporate bond N=3, I/Y = 1.25%, PMT= $55, FV = $1,000 Probability of default on each cash flow is 2.5% You get $0 PMT if default occurs Use expected value and risk free rate (1.25%) to solve
Chapter5: The Cost Of Money (interest Rates)
Section: Chapter Questions
Problem 7PROB
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Transcribed Image Text:7. What is the fundamental value of this corporate bond?
N=3, 1/Y = 1.25%, PMT= $55, FV = $1,000
Probability of default on each cash flow is 2.5%
You get $0 PMT if default occurs
Use expected value and risk free rate (1.25%) to solve
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