You are analyzing a 1 year corporate bond issued by Bad Management Company. The company has a "CCC" rating by S&P suggesting a probability of default of 19.0%. They have borrowed money on an uncollateralized basis, so you estimate the recovery rate on the company's bond to be just 25% in the event of a default. The 1-year bond you are looking at pays a coupon of 10% which will be paid at year end. The bond has a par value of $100. The risk free rate is 2.75%.

What is the maximum price one would pay for this bond if they wanted a fair risk adjusted rate of return?

Answer rating: 100% (QA)

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