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The Loughran Corporation has issued zero-coupon corporate bonds with a five-year maturity. Investors believe there is a 30% chance that Loughran will default on these
The Loughran Corporation has issued zero-coupon corporate bonds with a five-year maturity. Investors believe there is a 30% chance that Loughran will default on these bonds. If Loughran does default, investors expect to receive 25% of their promised payoff at maturity (e.g., $0.25 cents per dollar they are promised). If investors require a 8.0% expected return on their investment in these bonds, which of the following statements most accurately describes the price (per $100 face value) and current YTM of these bonds? A. This bond is priced at $68.06 per $100 face value with a YTM of 8.0%. B. This bond is priced at $52.75 per $100 face value with a YTM of 13.6%. O C. This bond is priced at $52.75 per $100 face value with a YTM of 8.0%. D. This bond is pric at $77.50 per $100 face value with a YTM of 5.2%. E. This bond is priced at $47.64 per $100 face value with a YTM of 16.0%
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