Question
A 1-year, $1000, zero-coupon junk bond with a beta of 0.55 will default with 30% probability. If it does, investors receive only 60% of what
A 1-year, $1000, zero-coupon junk bond with a beta of 0.55 will default with 30% probability. If it does, investors receive only 60% of what is due to them. The risk-free rate is 3% and the market risk premium is 5.5% per year. What is the price of this bond? What is its promised rate of return? What is its expected rate of return?
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Focus On Personal Finance
Authors: Jack Kapoor, Les Dlabay, Robert J. Hughes
2nd Edition
0073530638, 9780073530635
