An investment costs $80 and offers a payoff of $100 with probability p and 0 with probability 1-p. Time-equivalent Treas
Posted: Sun Jun 05, 2022 7:30 am
An investment costs $80 and offers a payoff of $100 with
probability p and 0 with probability 1-p. Time-equivalent
Treasuries offer an interest rate of 8%. Assume risk neutrality,
i.e. the expected return on any security of the same time duration
should be the same regardless of how risky the payoff is. What is
the probability of default?
probability p and 0 with probability 1-p. Time-equivalent
Treasuries offer an interest rate of 8%. Assume risk neutrality,
i.e. the expected return on any security of the same time duration
should be the same regardless of how risky the payoff is. What is
the probability of default?