Suppose XYZ Corporation has two bonds paying semiannually according to the following table:
|
Remaining
|
Coupon
|
|
T-Bill Rate
|
|
Maturity
|
(sa 30/360)
|
Price
|
(Bank discount)
|
|
6 months
|
8.0%
|
99
|
5.5%
|
|
1 year
|
9.0%
|
100
|
6.0%
|
The recovery rate for each in the event of default is 50%. For simplicity, assume that each bond will default only at the end of a coupon period. The market-implied risk-neutral probability of default for XYZ Corporation is
A. Greater in the first six-month period than in the second
B. Equal between the two coupon periods
C. Greater in the second six-month period than in the first
D. Cannot be determined from the information provided