1. A zero-coupon bond has par value $95 and one year to maturity, at which time it may default. From Merton's model, you estimate that the risk-neutral probability of default to be 20% and the present value of recovery to be $51. Find percentage of par value that will be recovered in the event of default at maturity, given risk-free interest rate of 5%.

	a.	56.44%
	b.	51%
	c.	55.37%
	d.	53.68%

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Calculation of of recove... View the full answer