Question
A zero-coupon bond has a beta of 0.15 and promises to pay $5,000 next year with a probability of 96%, $1,000 with a probability of
A zero-coupon bond has a beta of 0.15 and promises to pay $5,000 next year with a probability of 96%, $1,000 with a probability of 2%, and there is a 2% probability of total default. One-year Treasury securities are yielding 4%, and the expected return on the market is 10%. What is the time premium for this bond investment?
(A) 4.0%
(B) 5.3%
(C) 5.4%
(D) 6.0%
Step by Step Solution
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We first must determine the bonds promised return The ...
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Macroeconomics Principles and Applications
Authors: Robert E. Hall, Marc Lieberman
6th edition
1111822352, 1111822354, 9781133708742 , 978-1111822354
