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February 28th, 2014, 04:19 AM   #1
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Defaultable bond questn

Hi, this is more of a finance question, so not sure where to post it.

"now price a bond that is of a 4 year maturity and if it defaults in year t+k incurs a loss of 20%, but it does not terminate, and continues to be traded up to and including the fourth year"

I do not want the answer, just if someone could point at the general topic to read in regards to this or the approporiate bond pricing formula, as I understand this is not a normal bond pricing forumla, but must include the probability of default as well?

Thank you in advance!
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