QUESTION 9 You are interested in investing in the AAA Bond and are interested in determining its Expected Return. This corporate bond has a face value of $2,000. There is an associated coupon rate of 6.88%. The time to maturity is 3.5 years. The current price of this bond is $935.00 You have found that the probability of default is 25%. The recovery rate for this company's bond is 30%. Based on this data, what is the Total Expected Cash Flow on the AAA Bond? a. Total Expected Cash Flow on the AAA Bond =$1,788.50 O b. Total Expected Cash Flow on the AAA Bond = $1,678.20 Oc. Total Expected Cash Flow on the AAA Bond =$2043.34 Od. Total Expected Cash Flow on the AAA Bond =$2,025.54
QUESTION 9 You are interested in investing in the AAA Bond and are interested in determining its Expected Return. This corporate bond has a face value of $2,000. There is an associated coupon rate of 6.88%. The time to maturity is 3.5 years. The current price of this bond is $935.00 You have found that the probability of default is 25%. The recovery rate for this company's bond is 30%. Based on this data, what is the Total Expected Cash Flow on the AAA Bond? a. Total Expected Cash Flow on the AAA Bond =$1,788.50 O b. Total Expected Cash Flow on the AAA Bond = $1,678.20 Oc. Total Expected Cash Flow on the AAA Bond =$2043.34 Od. Total Expected Cash Flow on the AAA Bond =$2,025.54
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Only need question 9
Transcribed Image Text:Refer to the following information in order to answer Problems #6, #7, #8
The par value is $1,000.00
THe bond price is $895.00
The coupon rate is 9.60%
Time to maturity is 2 years
Probability of default is 30%
Recovery rate is 35%
What is the Expected Rate of Return on this bond?
O a. Expected Rate of Return =5.68%
O b. Expected Rate of Return =7.68%
c. Expected Rate of Return =6.58%
O d. Expected Rate of Return = 5.86%
QUESTION 9
You are interested in investing in the AAA Bond and are interested in determining its Expected Return.
This corporate bond has a face value of $2,000. There is an associated coupon rate of 6.88%.
The time to maturity is 3.5 years.
The current price of this bond is $935.00
You have found that the probability of default is 25%.
The recovery rate for this company's bond is 30%.
Based on this data, what is the Total Expected Cash Flow on the AAA Bond?
a. Total Expected Cash Flow on the AAA Bond =$1,788.50
O b. Total Expected Cash Flow on the AAA Bond = $1,678.20
O c. Total Expected Cash Flow on the AAA Bond =$2043.34
O d. Total Expected Cash Flow on the AAA Bond =$2,025.54
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