What is the probability that the bond will pay off in full, Financial Management

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What is the probability that the bond will pay off in full

A zero-coupon bond will pay off $1000 with some unknown probability. If the bond doesn’t pay off in full, then it will default and repay only $300. Today this bond costs $900. If the expected rate of return is 6%, then what is the probability that the bond will pay off in full? Assume the world is risk-neutral with perfect markets.

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Financial Management: What is the probability that the bond will pay off in full

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Financial Management: What is the probability that the bond will pay off in full

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