Tomorrow your firm will issue 30K one-year zero-coupon bonds outstanding priced at $800 per bond. The bonds have a face value of $900. If the firm does not default, it can fully repay the bonds. If the firm defaults, the value of assets will equal $25M and the firm will pay $3M in bankruptcy costs.

Suppose that probability of default becomes 40 percent, what would be the expected return on these bonds?

		0.06
		0.02
		0.04