Firm XYZ has three zero - coupon bonds outstanding. Bond A has a maturity of 1 year
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Question:
Firm XYZ has three zerocoupon bonds outstanding. Bond A has a maturity of year and a yield of Bond B has a maturity of years and a yield of Bond C has a maturity of years and a yield of Zerocoupon Treasury securities with maturities of and years have yields of and respectively. Assume that if firm XYZ defaults, bondholders of A B and C will recover nothing.
a Calculate firm XYZs annual marginal default probabilities for years and pts
b Calculate firm XYZs cumulative default probabilities for years and pts
c Calculate bond Cs yield spread. pts
d Assume that firm XYZ is about to issue a senior secured bond that pays no coupons and matures in year. The expected recovery rate on this bond is $ on the dollar. Bases on the implied default probability you calculated earlier, what should be the required yield on this new bond? pt
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