Question: Suppose a bond has 7 years until maturity and a coupon rate of 10.9% (expressed as an APR with k=2). The bond has a face

Suppose a bond has 7 years until maturity and a coupon rate of 10.9% (expressed as an APR with k=2). The bond has a face value of $1,000, and the bond pays semiannual coupon payments. The next payment on the bond is expected six months from now.

The coupon payments are certain (including the coupon that occurs at maturity) are certain to happen. However, the face vale payment is uncertain. With probability 0.11, the firm will default, and only $500 of the face value will be paid. Otherwise, the full promised face value will be paid.

If the YTM of the bond is 11.8% (APR with k=2), what is the PV of the bond?

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