A one-year bond is issued by a corporation with a 5% probability of default by year-end. In case of default, the investor will recover nothing. The one-year yield for default-free bonds is 10%.
a. What yield should be required by investors on these corporate bonds if they are risk neutral?
b. What should the credit spread be?

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The Answer of A one-year bond is issued by a corporation with a 5% probability of default by year-end. In case of default, the investor will recover nothing. The one-year yield for default-free bonds is 10%.
a. What yield should be required by investors on these corporate bonds if they are risk neutral?
b. What should the credit spread be?

A One-Year Bond Is Issued by a Corporation with a 5