You Are Considering Purchasing a 10-Year $10,000 Par Value Bond

You are considering purchasing a 10-year $10,000 par value bond that pays semi-annual coupons at j₂ = 10%.The probability the n^th coupon will be defaulted,given that the previous (n - 1) coupons were paid,is 5% for each coupon during the first 5-years and 10% for each coupon for the last 5-years.What price should you pay for the bond if the desired yield is j₂ = 8%?

A) $10,220.61
B) $10,425.90
C) $10,882.37
D) $11,610.16

Correct Answer:

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