A bond with face value of $1,000 has annual coupons, promised coupon rate of 8%, and 5
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of 8%, and 5 years to maturity. Investors require an expected return of 5% from this bond.
The probability of default is 2% per year and the loss given default is 60%.
(a) What is the yield-to-maturity of the bond?
(b) What is the price of the bond?
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