Suppose a 1 dollar bond with 1 year maturity has a 1 dollar face value and is trading at a 33 percent discount. What is

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Suppose a 1 dollar bond with 1 year maturity has a 1 dollar face
value and is trading at a 33 percent discount. What is the market
value of the bond? The contractual interest rate is 8 percent. What
is the effective nominal yield on the bond? Now suppose a bond with
1 year maturity has a face value of d dollars (including principal
and interest). There is a probability of 33 percent that the bond
issuer (borrower) will default completely. Otherwise, the issuer
will pay in full. What is the market value v of the bond? The
contractual interest rate is 8 percent. What is the effective
nominal yield on the bond? Suppose the default probability
increases to 50 percent. What is the market value v′ of the bond
now? At a contractual interest rate of 8 percent, what is the
effective nominal yield on the bond now? Consider an investor.
There are two bonds. One pays v′ with 100 percent certainty. The
other bond pays d with a 50 percent chance, and zero otherwise.
Which bond, if any, will the investor prefer?