What is the cash flow that bond anx

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a) Bond ANX.B currently has a price $850, one year until maturity, a promised cash flow of $1,050 next year, and an expected return of 6 percent. If ANX defaults, then Bond ANX.B pays nothing. What is the probability of default implied by this information?

b) Bond ANX.A is senior to Bond ANX.B, and thus has first priority on any available cash flows in the default state. Bond ANX.A has a current price of $950, one year until maturity, a promised cash flow of $1,025 next year, and an expected return of 5 percent. The probability of default is given by your answer in part (a). Based on this information, what is the cash flow that Bond ANX.A will pay in the default state?

Reference no: EM132719621

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