Price of the firm 4-year zero-coupon

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The US Treasury issues a 4-year zero-coupon bond with $100 face value, which is priced at $90 today. Firm X also issues a 4-year zero-coupon bond, which has a 10% probability of default. Assume that default can only occur just before the bond matures. In the case of default, there is a 40% chance that none of the par value will be recovered and a 60% chance that 50% of the bond's par value will be recovered. The spread between the expected zero rates of the 2 bonds is 4%, i.e. the bond of firm X has a 4% higher expected annualised rate of return than the US Treasury bond. What should be the price of the firm's 4-year zero-coupon bond for $100 par value, to the nearest cent?

Reference no: EM133076687

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