A corporate bond with a beta of 0.2 will pay off next year with 99% probability. The
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A corporate bond with a beta of 0.2 will pay off next year with 99%
probability. The risk-free rate is 3% per annum, and the equity premium is 5% per annum.
(a) What is the price of this bond?
(b)What is its promised rate of return?
(c) Decompose the bond’s quoted rate of return into its components.
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