QUESTION 3 [40 Points] An individual (at t = 0) owns a \"B-rated\" bond. This bond will pay the bondholder a coupon payment of $5 at the end of t = 1 as well as the end of t = 2. Upon maturity, the bondholder will receive the face value of the bond ($100). The following table shows the bond rating transition rates between two periods: Entries are probability of transitioning from current ratin to either A or B next eriod Arated next period B-rated next period Total (Across rows) Arated this period 0.9 0.1 | 1 B-rated this eriod 0.2 0.8 1 For example, there is a 20% chance that a bond rated \"B\" in this period will be rated \"A\" next period; there is an 80% chance that a bond rated \"B\" in this period will continue to be rated \"B\" next period. The discount rates depend on the bond rating and period: t = 1 Discount Rate t = 2 Discount Rate Bond rating: A 1% | 2% Bond ratin :B 3% 4% Assuming the bondholder is risk averse, calculate and interpret her \"discount due to risk\". \"Derive\" your answers by showing all steps/ calculations and stating all assumptions