Question
We have a 5% 1-year bond. The bonds par is $1000. There is a 20% chance the company will go into bankruptcy and only pay
We have a 5% 1-year bond. The bonds par is $1000.
There is a 20% chance the company will go into bankruptcy and only pay $500
1,What is the bonds value? Assume that the companys possible default is totally unrelated to other events in the economy and risk-free interest rate is 5%.
2,If on top of default risk, investors require an additional 3 percent market risk premium, what are the price value and YTM?
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International Financial Reporting And Analysis
Authors: David Alexander, Ann Jorissen, Martin Hoogendoorn
8th Edition
978-1473766853, 1473766850
