Question: Consider a bond with uncertain payoffs (non-zero default risk). It is a zero coupon bond (assume annual compounding), a $1,000 face value, and one year

Consider a bond with uncertain payoffs (non-zero default risk). It is a zero coupon bond (assume annual compounding), a $1,000 face value, and one year to maturity. There is a 80% chance the bond will repay in in full and a 20% change that the bond will default, in which case the investor expects to receive $900. The discount rate is 5%, compounded annually.

What is the value of this bond and what is it's YTM?

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