A zero-coupon bond with a market-beta of 0.2 promises to pay $1,000 in the first year. However, it may default and pay nothing with probability 0.09. If the risk-free rate is 4%, the equity premium is 6.1%, and the CAPM is correct, what would be the bond price today?
A zero-coupon bond with a market-beta of 0.2 promises to pay $1,000 in the first year. However, it may default and pay nothing with probability 0.09. If the risk-free rate is 4%, the equity premium is 6.1%, and the CAPM is correct, what would be the bond price today?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A zero-coupon bond with a market-beta of 0.2 promises to pay $1,000 in the first year. However, it may default and pay nothing with probability 0.09. If the risk-free rate is 4%, the equity premium is 6.1%, and the
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