Question: Consider a corporate bond with face value $1,000, maturing in 20 years, 10% annual coupon rate, and semi-annual coupon payments. The fair discount rate

Consider a corporate bond with face value $1,000, maturing in 20 years, 10% annual coupon rate, and

Consider a corporate bond with face value $1,000, maturing in 20 years, 10% annual coupon rate, and semi-annual coupon payments. The fair discount rate that compensates investors in the bond is 4% per semester. Assume that corporation only defaults at payment times, and that the probability of default is constant and equal to 1% per semester. a) Assume that when the corporation defaults, bondholders receive a recovery value of $500 at the time of default. What is the fair price of the bond? b) What is the yield to maturity for this bond?

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