Scenario Analysis Two borrowers (borrowers A and B) are looking to borrow $5,000 each from a bank for a six-year term (coupons are paid annually). Borrower A is a better credit risk than Borrower B. The bank therefore accepts Bond A from Borrower A at a coupon rate of 5.00%. Borrower B issues his bond to the bank at a coupon rate of 10.00%. For this section, you will find the present value of this bond portfolio under two different scenarios: 1) a base case where both borrowers pay off their loans completely, and 2) a bond default scenario where Borrower B defaults on his loan in a particular time period. Each row is worth 1 point (i.e., all or nothing no partial credit).

Salient Facts (you know this drill by now) Calculate the coupon payments of the bonds Calculate the present value discount factor (PVDF) for each yearyear 1-6 o The market interest rate is 7.50%. You will use the same PVDFs for each scenario