Assume the following values for probability of default t+1 t+2 t+3 t+4 t+5 A 0.3 B 0 0 0 0.5 Assume a 5 year, 10%, $1000 face value bond is bought at…

Assume the following values for probability of default

         t+1     t+2    t+3    t+4    t+5

A       0.3    0.3     0.3    0.3     0.3

B        0        0      0       0.5     0.5

• Assume a 5 year, 10%, $1000 face value bond is bought at par: $1000.  Calculate the yields on the two bonds.  Which is higher?

Qi Computation of yield on a bond1st calculate the cumulative survival probability of coupon payments.Cumulative survival rate = (1-annual default probabilityn)=1- (0.35)=0.99757=99.76%Coupon…