Problem 23-1

Expected yield

You own a bond with an annual coupon rate of 8% maturing in two years and priced at 85%. Suppose the probability is 11% that at maturity the bond will default and you will receive only 45% of the promised payment. Assume a face value of $1,000. a. What is the bonds promised yield to maturity? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Promised yield %

b. What is its expected yield? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Expected yield