You own a bond with an annual coupon rate of 6% maturing in two years and priced at 85%. Suppose that there is a 10% chance that at maturity the bond will default and you will receive only 45% of the promised payment. Assume a face value of $1,000. a. What is the bond's promised yield to maturity? b. What is its expected yield (i.e., the possible yields weighted by their probabilities)? Note: Enter your answers as a percent rounded to 2 decimal places. a. Promised yield b. Expected yield % %
You own a bond with an annual coupon rate of 6% maturing in two years and priced at 85%. Suppose that there is a 10% chance that at maturity the bond will default and you will receive only 45% of the promised payment. Assume a face value of $1,000. a. What is the bond's promised yield to maturity? b. What is its expected yield (i.e., the possible yields weighted by their probabilities)? Note: Enter your answers as a percent rounded to 2 decimal places. a. Promised yield b. Expected yield % %
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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Transcribed Image Text:You own a bond with an annual coupon rate of 6% maturing in two years and priced at 85%. Suppose that there is a 10% chance that at
maturity the bond will default and you will receive only 45% of the promised payment. Assume a face value of $1,000.
a. What is the bond's promised yield to maturity?
b. What is its expected yield (i.e., the possible yields weighted by their probabilities)?
Note: Enter your answers as a percent rounded to 2 decimal places.
a. Promised yield
b. Expected yield
%
%
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