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Question: answer and explainshow work for each part of the question...

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The government of Puerto Rico and Finland are thinking of issuing bonds to finance their spending. Both bonds share the characteristics: Have a maturity of 5 years Coupons of S50 each year .A principal value of S1000 Puerto Rico expects the yield-to-maturity on its bonds to be 20%, while Finland expects the yield-to-maturity on its bond to be 10%. Assume that both countries are identical except for their probability of default on their debt 1. Which country do the investors think is less likely do default? Why? Using the present value approach seen in class, find the prices of the bonds issued by the two countries If each country issues 1000 bonds, how much money will they each raise? Is the most risky country raising the most money? What would happen to the price of the bonds of Puerto Rico if investors believe that its risk of default decreases? Explain 2. 3. 4.

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