Question: Please help me with this question. See attached picture. Exercise Calculate the value of a risky corporate bond using the risk neutral valuation method. Assume

Please help me with this question. See attached picture.

Please help me with this question. See attached
Exercise Calculate the value of a risky corporate bond using the risk neutral valuation method. Assume that the risk free rate is 4% per period and that a period is defined as six month. The bond has a face value of E100 payable in two periods from now, and pays a 5% coupon payment at the end of the first and the second period. A corporate bond can be viewed as a derivative of the assets of the issuing company. Denote the value of the company's assets (above the node) and the cash pay-offs of the bond (below the node) 6300 UU E105 E120 U E100 E110 O UD 6105 E5 E50 DD E50 This means that the bond is risky in the sense that the principal may not be returned in period 2, and that the coupon payment in period 2 may not be paid. The coupon in period 1 is risk-free (Le. we assume the company has set aside funds to cover this). What is the present value of the bond

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