Consider a 4-year, 5% annual coupon bond with a face value of
$10,000, which was issued three years ago. The bond just paid the
coupon. Therefore, this bond has one year to maturity, and the next
payment of the face and coupon will be made in exactly one year,
after which the bond will cease to exist. If the bond defaults
before next year, it will pay total of $8,000 in one year. The
effective 1-year risk-free rate is 3.55%....