9. You are considering buying the bonds of a very risky company. A bond with a $100

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9. You are considering buying the bonds of a very risky company. A bond with a $100 face value, a one-year maturity, and a coupon rate of 22% is selling for $95. You consider the probability that the company will actually survive to pay off the bond 80%. With 20% probability, you think that the company will default, in which case you think that you will be able to recover $40. What is the expected return on the bond?

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Financial Modeling

ISBN: 9780262024822

2nd Edition

Authors: Simon Benninga

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