Question: The default intensity is given as = 0.1 per period. The recovery rate is = 0.5. The risk-free rate of interest isr =

The default intensity is given as λ = 0.1 per period. The recovery rate is φ = 0.5. The risk-free rate of interest isr = 0.10 per period. Compute the price of a zero coupon bond with a maturity of two periods under the following assumptions:

• No default risk (i.e., Treasury).

• Default risk with recovery of par (RP).

• Default risk with recovery of Treasury (RT).

• Default risk with recovery of market value (RMV).

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