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Consider a one-year, $1000, zero-coupon bond issued. Assume that the bond payoffs are uncertain. There is a 50% chance that the bond will repay its
Consider a one-year, $1000, zero-coupon bond issued. Assume that the bond payoffs are uncertain. There is a 50% chance that the bond will repay its face value in full and a 50% chance that the bond will default and you will receive $900. Thus, you would expect to receive $950.Because of the uncertainty, the discount rate is 5.9%. Calculate the promised yield on the bond.
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