Question: Consider a one year, 7% coupon bond with a par value of $1000 issued by a private corporation. The one year risk-free rate is 9%.

Consider a one year, 7% coupon bond with a par value of $1000 issued by a private corporation. The one year risk-free rate is 9%. The corporation has hit on hard times and the concensus is that there is a 30% probability that it will default on its bonds. If an investor were willing to pay $695 for the bond, is that investor risk neutral, risk lover, or risk averse? why?

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