A zero-coupon bond has par value $95 and one year to maturity, at which time it may default. From Merton's model, you es

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A zero-coupon bond has par value $95 and one year to maturity, at which time it may default. From Merton's model, you estimate that the risk-neutral probability of default to be 20% and the present value of recovery to be $51. Find the expected value that will be recovered at maturity, given risk-free interest rate of 5%. Hint: in default, it's the recovery value at that point; if there is no default, it's the par value.
a.
$95
b.
$86.72
c.
$86.20
d.
$53.61
Given the following information for a three-year bond, which of the following can you calculate?
Year
U.S. Treasury yields
Risk-neutral probability of default
Loss Given Default
1
2%
0.50%
60%
2
2.50%
1%
60%
3
3%
1.50%
60%
a.
Expected loss from default
b.
Present value of expected loss from default
c.
The value of Credit Default Swap protecting the investor from default
d.
All the above