You are evaluating a one year zero coupon bond, which you estimate has a 5 percent default probability. The current risk free rate is 2 percent. In case of default, similar bonds usually recover 41 pennies on the dollar owed. What rate of return would you require, at a minimum, on this investment? Enter answer in percents, accurate to two decimal places. The answer has to be 5.1. Please show all the steps.
Rate of return = Risk free rate + Loss% * Default probability%/(1- Default probability%)
= 2% + 59%* 5%/(1-5%) = 5.11%
Loss% = (1 - .41) = .59 or 59%
You are evaluating a one year zero coupon bond, which you estimate has a 5 percent...
You are evaluating a one year zero coupon bond, which you estimate has a 6 percent default probability. The current risk free rate is 2 percent. In case of default, similar bonds usually recover 31 pennies on the dollar owed. What rate of return would you require, at a minimum, on this investment? Enter the answer in percents, accurate to two decimal places.
Consider a one-year, 10-percent coupon bond with a face value of $1,000 issued by a private corporation. The one-year risk-free rate is 10 percent. The corporation has hit on hard times, and the consensus is that there is a 20 percent probability that it will default on its bonds. If an investor were willing to pay at most $775 for the bond, is that investor risk-neutral or risk averse?
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BA Corp is issuing a 5 year bond with a coupon rate of 8 percent. The interest rate for similar bonds is currently 6 percent. Assuming annual payments, what price would you pay for the bond? Is it trading at a premium or a discount? Round your answer to 2 decimal places.
BA Corp is issuing a 5 year bond with a coupon rate of 8 percent. The interest rate for similar bonds is currently 6 percent. Assuming annual payments, what price would you pay for the bond? Is it trading at a premium or a discount? Round your answer to 2 decimal places. $920.15, discount -$1,084.25, discount $920.15, discount $1,084.25, premium Bigbie Corp. issued a three-year bond a year ago with a coupon of 8 percent. The bond pays interest semiannually....
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Grummon Corporation has issued zero-coupon corporate bonds with a five-year maturity (assume $ 100 face value bond). Investors believe there is a 20 % chance that Grummon will default on these bonds. If Grummon does default, investors expect to receive only 50 cents per dollar they are owed. If investors require a 6 % expected return on their investment in these bonds, what will be the a. price of these bonds? b. yield to maturity on these bonds? Note: Assume...