Suppose the prices of defautable and default free zero coupon bond with principal of $1, for different maturities (in years) are as follows:
Maturity P(0,T) P(0,T)
0.5 0.99 0.98
1 0.96 0.94
1.5 0.93 0.90
2 0.89 0.85
a) What is the price of 2-year defaultable bond with principal of $1, and pays $0.02 coupon semiannually?
b) What is the value of risk free annuity that pays $1 semiannually?
c) What is the spread for Asset Swap Package for the bond in part a?