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Suppose the prices of defautable and default free zero coupon bond with principal of $1, for different maturities (in years) are as follows:

Maturity P(0,T) P(0,T)

0.5 0.99 0.98

1 0.96 0.94

1.5 0.93 0.90

2 0.89 0.85

a) What is the price of 2-year defaultable bond with principal of $1, and pays $0.02 coupon semiannually?

b) What is the value of risk free annuity that pays $1 semiannually?

c) What is the spread for Asset Swap Package for the bond in part a?

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  • Reference No.:- M940990

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