Suppose you are thinking of investing on Shakylandia’s bonds with a significant probability of default.
Issue Date: today
Coupon Rate: 8%
Face Value: $1,000
Maturity: 4 years
A US treasury bond with the same maturity yields 3%. Assume that US treasury bond does not have any default chance (it is low enough to be ignored).
a) If Shakylandia did not have any default chance, what would be the price of their bonds today?