A firm issues a 3-year zero-coupon bond, with par value $100. Its price is $83. Assume that default can only occur just before the bond matures. If default occurs, there is a 20% chance that none of the par value will be recovered and an 80% chance that 50% of the par value will be recovered. The annualised expected return of the bond is 3%. What is the default probability? 

Answer rating: 100% (QA)

The default probability can be calculated using the following formula Default Probabi... View the full answer