Consider two bonds x and y, both with face value 100, coupon rate 10%, and maturity of 1 year. Assume that the interest rate is 10%. Assume that bond y will go into default on both the principal and interest payments with a probability of 50%. Suppose that prices equal the expected discounted payments. What is the difference in the yields to maturity? (a) The yields to maturity are the same. (b) 110. (c) 120. (d) 10. (e) 12.
Consider two bonds x and y, both with face value 100, coupon rate 10%, and maturity of 1 year. Assume that the interest rate is 10%. Assume that bond y will go into default on both the principal and interest payments with a probability of 50%. Suppose that prices equal the expected discounted payments. What is the difference in the yields to maturity? (a) The yields to maturity are the same. (b) 110. (c) 120. (d) 10. (e) 12.
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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Consider two bonds x and y, both with face value 100, coupon rate 10%, and maturity of 1 year. Assume that the interest rate is 10%. Assume that bond y will go into
default on both the principal and interest payments with a probability of 50%. Suppose
that prices equal the expected discounted payments. What is the difference in the
yields to maturity?
(a) The yields to maturity are the same.
(b) 110.
(c) 120.
(d) 10.
(e) 12.
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