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The recovery rate for each in the event of default is 50

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Reference no: EM13568928

Suppose XYZ Corporation has two bonds paying semiannually according to the following table:

Remaining

Coupon

T-Bill Rate

Maturity

(sa 30/360)

Price

(Bank discount)

6 months

8.0%

99

5.5%

1 year

9.0%

100

6.0%

The recovery rate for each in the event of default is 50%. For simplicity, assume that each bond will default only at the end of a coupon period. The market-implied risk-neutral probability of default for XYZ Corporation is

A. Greater in the first six-month period than in the second

B. Equal between the two coupon periods

C. Greater in the second six-month period than in the first

D. Cannot be determined from the information provided

Reference no: EM13568928

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