Question
P1)The interest rate is 8.3%. A company wants to sell a one-year bond for $1000 today. There is a 2% chance the company will default
P1)The interest rate is 8.3%. A company wants to sell a one-year bond for $1000 today. There is a 2% chance the company will default on its bond and only be able to repay 94% of the $1000 principal amount (and none of the coupon). What coupon rate must the company set for the bond? Give your answer in percentage to the nearest 0.1 percent.
P2)*A project will have one of the following time 1 payoffs, each with the corresponding probability.
$99 with probability 13%. $314 with probability 58%. $506 otherwise.
The discount rate is 9.8%. The project is partially financed with debt with a time 1 promised payoff of $218. What is the promised return on the debt? Give your answer in percentage to the nearest 0.1 percent.
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