Part II: Valuing Bonds with Default and Recovery The airline industry is capital-intensive and often funded with debt. I was surprised that a U.S. airline goes bankrupt every year or two. https://en.wikipedia.org/wiki/List of airline bankruptcies in the United States Consider a two- year coupon bond issued by an airline with - a face value of $1,000 - a coupon rate of 3% - an annual default probability of 5%, - and a risk-free interest rate of 3% per year. 9. Use a binomial tree to value the bond, assuming no recovery. Show your work for partial credit; write your answer in dollars and cents on the line below. A. The value (price, expected present value, etc.) of the bond is $.

1. Part II: Valuing Bonds with Default and Recovery The airline industry is capital-intensive and
often funded with debt. I was surprised that a U.S. airline goes bankrupt every year or two.
https://en.wikipedia.org/wiki/List of airline bankruptcies in the United States Consider a two-
year coupon bond issued by an airline with - a face value of $1,000 - a coupon rate of 3% - an
annual default probability of 5%, - and a risk-free interest rate of 3% per year. 9. Use a binomial
tree to value the bond, assuming no recovery. Show your work for partial credit; write your
answer in dollars and cents on the line below. A. The value (price, expected present value, etc.)
of the bond is $