You own a bond with an annual coupon rate of 5% maturing in two years and priced at 87%. Suppose that there is a 12% chance that at maturity the bond will default and you will receive only 40% of the promised payment. Assume a face value of $1,000. a. What is the bond's promised yield to maturity? (Enter your answer as a percent rounded to 2 decimal places.) Promised yield 12.77% b. What is its expected yield (i.e., the possible yields weighted by their probabilities)? (Enter your answer as a percent rounded to 2 decimal places.) Expected yield %
You own a bond with an annual coupon rate of 5% maturing in two years and priced at 87%. Suppose that there is a 12% chance that at maturity the bond will default and you will receive only 40% of the promised payment. Assume a face value of $1,000. a. What is the bond's promised yield to maturity? (Enter your answer as a percent rounded to 2 decimal places.) Promised yield 12.77% b. What is its expected yield (i.e., the possible yields weighted by their probabilities)? (Enter your answer as a percent rounded to 2 decimal places.) Expected yield %
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:You own a bond with an annual coupon rate of 5% maturing in two years and priced at 87%. Suppose that
there is a 12% chance that at maturity the bond will default and you will receive only 40% of the promised
payment. Assume a face value of $1,000.
a. What is the bond's promised yield to maturity? (Enter your answer as a percent rounded to 2 decimal
places.)
Promised yield
12.77%
b. What is its expected yield (i.e., the possible yields weighted by their probabilities)? (Enter your answer
as a percent rounded to 2 decimal places.)
Expected yield
%
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