Question: An investor is evaluating two bonds with the same maturity but different default risks. Bond A has a yield of 5 % , and Bond

An investor is evaluating two bonds with the same maturity but different default
risks. Bond A has a yield of 5%, and Bond B has a yield of 8%. The investor
believes that the probability of default on Bond B is 15% over the holding
period and estimates that, in the event of default, they will recover 30% of the
bonds face value (and lose 70%). The investor also has the option of investing
in a risk-free bond with a yield of 2%

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