Question: You are analyzing a distressed bond with one year to maturity. The bond has the face value of $100 and pays a cuopon of 5% per year, with annual cuopon. The bond is currently trading at $80. What is yeild to maturity on bond? If the probablity of default is 35%, what is cost of debt? Assume that upon default, ony 50% of face value will be recovered and that remainig cuopon will not be paid. If the probability of default rises to 40% but the expected payout in default remains at 50%, what do you think will happen to yeild to maturity and cost of debt? why?