Question
The 1-year bonds of Casino, Inc., have a 10.9 percent coupon rate and trade in the market at a yield of 12.2 percent. There is
The 1-year bonds of Casino, Inc., have a 10.9 percent coupon rate and trade in the market at a yield of 12.2 percent. There is a 4.4 percent chance that Casino will default and pay nothing. What cost of debt should be used in Casino's WACC?
please describe the logic behind the calculation, I am just unsure if yield also reflects the chances of default, please clear out the confusion.
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International Finance Theory and Policy
Authors: Paul R. Krugman, Maurice Obstfeld, Marc J. Melitz
10th edition
978-0133425895, 133425894, 978-0133423631, 133423638, 978-0133423648
