Blue just issued zero-coupon corporate bonds with a five-year matury (assume $100 face value, annual compounding). The expected return on bonds with such risk is 6%. They will default with a 40% probability. In the event of defulat, investors expect to recieve 50 cents per dollar they are owed. What will be the price and yield to maturity (YTM) of these bonds?
Blue just issued zero-coupon corporate bonds with a five-year matury (assume $100 face value, annual compounding). The expected return on bonds with such risk is 6%. They will default with a 40% probability. In the event of defulat, investors expect to recieve 50 cents per dollar they are owed. What will be the price and yield to maturity (YTM) of these bonds?
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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Blue just issued zero-coupon corporate bonds with a five-year matury (assume
$100
face value, annual compounding). The expected return on bonds with such risk is
6%.
They will default with a
40%
probability. In the event of defulat, investors expect to recieve
50
cents per dollar they are owed. What will be the price and yield to maturity (YTM) of these bonds?Question content area bottom
Part 1
The price of these bonds is
$enter your response here.
(Round to the nearest cent.)The yield to maturity on these bonds is
enter your response here%.
(Round to two decimal places.)Expert Solution
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