You invest $27,000 in a corporate bond selling for $900 per $1,000 par value. Over the coming year, the bond will pay interest of $75 per $1,000 of par value. The price of the bond at the end of the year will depend on the level of interest rates prevailing at that time. You construct the following scenario analysis:

Your alternative investment is a T-bill that yields a sure rate of return of 5%. Calculate the HPR for each scenario, the expected rate of return, and the risk premium on your investment. What is the expected end-of-year dollar value of your investment?

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Interest Rates Probability Year-End Bond Price Higher Unchanged 0.2 $850 0.5 915 Lower 0.3 985