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19. Tomorrow MW LLM will issue 50K one-year zero-coupon bonds outstanding priced at $800 per bond. The bonds have a face value of $1,000. If
19. Tomorrow MW LLM will issue 50K one-year zero-coupon bonds outstanding priced at $800 per bond. The bonds have a face value of $1,000. If the firm does not default, it can fully repay the bonds. If the firm defaults, the value of assets will equal $35M and the firm will pay $5M in bankruptcy costs. a. What is the promised rate of return on these bonds? b. If the expected return on these bonds equals 5 percent, what is the probability of default implied by bond's expected return? c. Suppose that the probability of default becomes 35 percent, what would be the expected return on these bonds
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