Question
A junk bond with a beta of 0.4 will default with 20% probability. If it does investors receive only $60. If everything is fine, the
A junk bond with a beta of 0.4 will default with 20% probability. If it does investors receive only $60. If everything is fine, the bond receives $100. The risk-free rate is 3% per annum and the market risk premium (over risk-free rate) is 5% per annum. What is the price of this bond, its promised rate of return, and its expected rate of return?
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Advanced Accounting
Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik
10th edition
0-07-794127-6, 978-0-07-79412, 978-0077431808
