Question: You estimate that a 1 - year zero - coupon bond ( face value = $ 1 0 0 0 ) has a probability of

You estimate that a 1-year zero-coupon bond (face value = $1000) has a probability of default equal to 16%. In the event of default, you estimate the bond issuer will bay $666. The current risk-free rate is 5%. How much should you pay for this bond?

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