A newly issued bond with one year to maturity has a price of 100, which equals its
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A newly issued bond with one year to maturity has a price of 100, which equals its face value. The coupon rate on the bond is 15 percent; the probability of default in one year is 35 percent; and the bond’s payoff in default will be 65 percent of its face value. Calculate the bond’s expected return.
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