The R in the top equitation is Slide #8 is the percentage of the face value expected to be recovered in case of a bankruptcy, e.g., 35%.

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Absolute valuation (DCF) of corporate bonds After some algebra, we simplify the previous expression to: (1 dR P = _ (_- d) + d [ ( = ) ] + - ( = ) * ( r+d 1+ Now take an option-free corporate bond with face value F, n coupon payments per year, the coupon is C, maturing T years ahead nT 1-d nT 1-d (1-d)c + dR r/n + d d [- - (1 + 7/m) | + (1+ 7 / (1+r/n) What happens when d=0? What happens when C=R=0? What happens if T is infinity? P = 8 Absolute valuation (DCF) of corporate bonds After some algebra, we simplify the previous expression to: (1 dR P = _ (_- d) + d [ ( = ) ] + - ( = ) * ( r+d 1+ Now take an option-free corporate bond with face value F, n coupon payments per year, the coupon is C, maturing T years ahead nT 1-d nT 1-d (1-d)c + dR r/n + d d [- - (1 + 7/m) | + (1+ 7 / (1+r/n) What happens when d=0? What happens when C=R=0? What happens if T is infinity? P = 8

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Lets break down the expressions provided 1 When d 0 This implies theres no default risk ... View the full answer