If the hazard rate is $$\lambda = 0.2$$ ,the risk-free rate is zero,then if the price of a one-year $100 face value discount bond is $85,then what is the expected recovery rate $$\phi$$ on default of the bond?
A)17%
B)24%
C)40%
D)55%

Question

Quizplus · Accepted Answer

The expected recovery rate is given by the formula:$$\phi = 1 - \frac{P}{FV} = 1 - \frac{85}{100} = 0.15$$Therefore, the expected recovery rate is 15%, which is closest to choice A, 17%.

If the Hazard Rate Is λ=0.2\lambda = 0.2λ=0.2 ,The Risk-Free Rate Is Zero,then If the Price of a Rate

If the Hazard Rate Is $\lambda = 0.2$ ,The Risk-Free Rate Is Zero,then If the Price of a Rate