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Investment theory: A 10-year bond of a firm in financial distress has a coupon rate of 12% and is selling at $900 (face value is
Investment theory: A 10-year bond of a firm in financial distress has a coupon rate of 12% and is selling at $900 (face value is $1,000). The firm is re-negotiating its debt and the bond-holders have agreed to cut coupon payments in half.
a. What is the stated (promised) yield-to-maturity on the bond? (i.e. what is the YTM at which the bond was trading?)
b. How does it compare to the expected yield on the bond? (i.e. what is the expected yield given the agreement?)
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