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You are considering buying the bonds of a very risky company. An annual coupon bond with a $1000 face value, a 1-year maturity, and a

You are considering buying the bonds of a very risky company. An annual coupon bond with a $1000 face value, a 1-year maturity, and a coupon rate of 9% is selling for $950. You consider the probability that the company will actually survive to pay off the bond is 70%. With a 30% probability, you think that the company will default, in which case you think that you will be able to recover $800. What is the expected return on the bond?

1.79%

5.58%

-1.05%

8.42%

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