The Loughran Corporation has issued zero-coupon corporate bonds with a five-year maturity. Investors believe there is a 30% chance that Loughran will default on these bonds. If Loughran does default, investors expect to receive 25% of their promised payoff at maturity (e.g., $0.25 cents per dollar they are promised). If investors require a 6.0% expected return on their investment in these bonds, which of the following statements most accurately describes the price (per $100 face value) and current YTM of these bonds? O A. This bond is priced at $57.91 per $100 face value with a YTM of 6.0%. B. This bond is priced at $74.73 per $100 face value with a YTM of 6.0%. C. This bond is priced at $52.31 per $100 face value with a YTM of 13.8% D. This bond is priced at $57.91 per $100 face value with a YTM of 11.5%. O E. This bond is priced at $77.50 per $100 face value with a YTM of 5.2%.
The Loughran Corporation has issued zero-coupon corporate bonds with a five-year maturity. Investors believe there is a 30% chance that Loughran will default on these bonds. If Loughran does default, investors expect to receive 25% of their promised payoff at maturity (e.g., $0.25 cents per dollar they are promised). If investors require a 6.0% expected return on their investment in these bonds, which of the following statements most accurately describes the price (per $100 face value) and current YTM of these bonds? O A. This bond is priced at $57.91 per $100 face value with a YTM of 6.0%. B. This bond is priced at $74.73 per $100 face value with a YTM of 6.0%. C. This bond is priced at $52.31 per $100 face value with a YTM of 13.8% D. This bond is priced at $57.91 per $100 face value with a YTM of 11.5%. O E. This bond is priced at $77.50 per $100 face value with a YTM of 5.2%.
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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Question 9?
![The Loughran Corporation has issued zero-coupon corporate bonds with a
five-year maturity. Investors believe there is a 30% chance that Loughran will
default on these bonds. If Loughran does default, investors expect to receive
25% of their promised payoff at maturity (e.g., $0.25 cents per dollar they are
promised).
If investors require a 6.0% expected return on their investment in these bonds,
which of the following statements most accurately describes the price (per $100
face value) and current YTM of these bonds?
A. This bond is priced at $57.91 per $100 face value with a YTM of 6.0%.
B. This bond is priced at $74.73 per $100 face value with a YTM of 6.0%.
C. This bond is priced at $52.31 per $100 face value with a YTM of 13.8%
D. This bond is priced at $57.91 per $100 face value with a YTM of 11.5%.
O E. This bond is priced at $77.50 per $100 face value with a YTM of 5.2%.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3966b9a7-fe71-44cf-b953-e8752bb97164%2Fb0602ac6-d0d6-4e41-8778-f73b18558c57%2Fp9u6b3_processed.jpeg&w=3840&q=75)
Transcribed Image Text:The Loughran Corporation has issued zero-coupon corporate bonds with a
five-year maturity. Investors believe there is a 30% chance that Loughran will
default on these bonds. If Loughran does default, investors expect to receive
25% of their promised payoff at maturity (e.g., $0.25 cents per dollar they are
promised).
If investors require a 6.0% expected return on their investment in these bonds,
which of the following statements most accurately describes the price (per $100
face value) and current YTM of these bonds?
A. This bond is priced at $57.91 per $100 face value with a YTM of 6.0%.
B. This bond is priced at $74.73 per $100 face value with a YTM of 6.0%.
C. This bond is priced at $52.31 per $100 face value with a YTM of 13.8%
D. This bond is priced at $57.91 per $100 face value with a YTM of 11.5%.
O E. This bond is priced at $77.50 per $100 face value with a YTM of 5.2%.
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