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bought for (i) 800,000, (m) 1,000,000, or (ii) 1,200,000 bond the 4.4.4 Suppose that a serial bond G.C......(not necessarily if" =g for all 1=1,2,...,m. PEK+$(C-K), where i tion amounts at yield ratej. SECTION 4.4 4.4.1 A government is issuing a 5-year 15% bond with face amount 1,000,000,000. The perception in the investment community that the government is somewhat unstable, and it is forecast that there is a 10% chance that the government will default on inter- est payments by the first or second years, a 20% chance of de fault by the third or fourth years, and a 25% chance of default (on interest and principal) by the fifth year. All probabilities are unconditional (measured from time 0, so that, for instance, the probability that the 7" coupon will be paid is.8). (a) Find the price to be paid for this issue for an investor to eam yield 2) - 18 on the expected payments. (b) Based on the price found in part (a), find the yield to maturi- ty if all payments are actually made. Pey V BOND VALUATION