Suppose the firm issues a single zero coupon bond with maturity value $100 a Compute the yield, probability of default, and expected loss given default for times to maturity of 1, 2, 3, 4, 5, 10, and 20 years b For each time to maturity compute the approximation for the yield r 1 T Pr(default) Expe...

a b Using the formulas of the main text we can calculate the following val ...

Suppose the firm issues a single zero-coupon bond with maturity value $100. a. Compute the yield, probability

Question:

Suppose the firm issues a single zero-coupon bond with value $100.
a. Compute the yield, probability of default, and expected loss given default for times to of 1, 2, 3, 4, 5, 10, and 20 years.
b. For each time to compute the approximation for the yield:
ρ = r + 1 / T × Pr(default) × Expected loss given default
How accurate is the approximation?
Assume that a firm has assets of $100, with σ = 40%, α = 15%, and δ = 0. The risk-free rate is 8%. Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...