The Risky-Bet firm has promised payments to its bondholders that total £100. The company believes that there is an 85% chance that the cash flow will be sufficient to meet these claims. However, there is a 15% chance that the cash flow will fall short, in which case total earnings are expected to be £65. If that happens, then the firm will go bankrupt. If the bond sells in the market for £84, what is (i) an estimate of the bankruptcy costs for Risky-bet and (ii) the impact of bankruptcy costs on the price of the bond?

Consider a CDS on Lehman Brothers default event. Given today’s market conditions you know that the present value of expected premium payments 6.0250*s, the present value of expected accrual payments is 0.0515*s and the present value of expected payoff is 0.1325. All measured per $1 of notional principal. You also know that Argo hedge fund bought this CDS on Lehman Brothers default from AIG one week ago with contractual rate of X basis points per year. Given this information the breakeven spread (i.e. the value of s) is _________ and today’s value of the CDS contract to AIG is positive if the value of s is _______ than X. a. 222 basis points;greater b. 218 basis points; smaller c. 218 basis points, greater d. 222 basis points; smaller e. 84 basis points; greater Please help and explain

16)The Risky-Bet firm has promised payments to its bondholders that total £100. The company believes that there is an 85% chance that the cash flow will be sufficient to meet these claims. However, there is a 15% chance that cash flows will fall short, in which case total earnings are expected to be £65. If that happens, then the firm will go bankrupt. If the bonds sell in the market for £84, what is (i) an estimate of the bankruptcy costs for Risky-Bet and (ii) the impact of bankruptcy costs on the price of the bond? a.(i) £14.35 and (ii) -£1.68 b.(i) £14.35 and (ii) -£2.14 c.(i) £15.67 and (ii) -£1.68 d.(i) £15.67 and (ii) -£2.14 e.None of the above

The risk free rate is 1.7%, inflation is expected to be 3.5%, a corporate bond has a yield rate of 8.7%, which includes a 1% liquidity premium. What is the default risk premium? (ignore the maturity risk) Group of answer choices a)4.2% b)2.5% c)3.5% d)Not enough information

Suppose a company has a £1 million obligation in 10 years’ time. Assume the yield curve is flat at 9%. The following annual coupon bonds (in the table attached below) are available to construct an immunised portfolio to meet this obligation. Using a discount factor of 9%, calculate the present value of the liability, and explain why bonds B and C cannot be used to construct the immunised portfolio.

Adidas issued a​ zero-coupon bond with a​ five-year maturity and a $100 face value. You believe there is a 20%   chance that they will​ default, and if they do​ default, you expect to receive only 55 cents per dollar of what you are promised. If you require a 6% expected return on this​ investment: a. what will be the price of these​ bonds, and 2. what will be the yield to maturity on these​ bonds? Note​: Assume annual compounding.       Question content area bottom Part 1 a. The price of these bonds is ​$enter your response here. ​(Round to the nearest​ cent.)   b. The yield to maturity on these bonds is enter your response here​%. ​(Round to two decimal​ places.)

Susan is looking into a convertible bond but does not know how to value this bond. The bond has a $1,000 face value and a conversion ratio of 36. What is the conversion price? If the stock price is $42, what is the conversion value?   What is the downside risk percentage of the bond if the current price is $1,250 and the investment premium is $861.53? Is this risk concerning?   The stock is currently selling for $42 per share. The issuer of the bond has announced a call; the call price is 108. What are your options here? What should you do?

Short Corp just issued bonds that will mature in 10 years, and Long Corp issued bonds that will mature in 20 years. Both bonds promise to pay a semiannual coupon, they are not callable or convertible, and they are equally liquid. Further assume that the Treasury yield curve is based only on the pure expectations theory. Under these conditions, which of the following statements is CORRECT? O a. If Long's and Short's bonds have the same default risk, their yields must under all conditions be equal. O b. If the Treasury yield curve is upward sloping and short has less default risk than Long, then Short's bonds must under all conditions have a lower yield than Long's bonds. O c. If the yield curve for Treasury securities is flat, Short's bond must under all conditions have the same yield as Long's bonds. O d. If the yield curve for Treasury securities is upward sloping, Long's bonds must under all conditions have a higher yield than Short's bonds. O e. If the Treasury yield curve is…