You are considering buying the bonds of a very risky company. A bond with a ($100) face
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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 percent is selling for \($95.
You\) consider the probability that the company will actually survive to pay off the bond 80 percent. With 20 percent 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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