Question

Suppose the firm issues a single zero-coupon bond.
a. Suppose the maturity value of the bond is $80. Compute the yield and default probability for times to maturity of 1, 2, 3, 4, 5, 10, and 20 years.
b. Repeat part (a), only supposing the maturity value is $120.
c. Does default probability increase or decrease with debt maturity? Explain.


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  • CreatedAugust 12, 2015
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