Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 6, Problem 28P
Grumman Corporation has issued zero-coupon corporate bonds with a five-year maturity. Investors believe there is a 20% chance that Grummon will default on these bonds. If Grumman does default, investors expect to receive only 50 cents per dollar they are owed. If investors require a 6% expected
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The Loughran Corporation has issued zero-coupon corporate bonds with a five-year maturity. Investors believe there is a 40% chance that Loughran will default on these bonds. If Loughran does default, investors
expect to receive 25% of their promised payoff at maturity (e.g., $0.25 cents per dollar they are promised).
If investors require a 7.0% expected return on their investment in these bonds, which of the following statements most accurately describes the price (per $100 face value) and current YTM of these bonds?
OA. This bond is priced at $42.78 per $100 face value with a YTM of 18.5%
OB. This bond is priced at $49.91 per $100 face value with a YTM of 14.9%
OC. This bond is priced at $71.30 per $100 face value with a YTM of 7.0%.
OD. This bond is priced at $49.91 per $100 face value with a YTM of 7.0%.
OE. This bond is priced at $70.00 per $100 face value with a YTM of 7.4%.
A company has issued a zero-coupon bond
with a two-year maturity. The face value of
each bond is $1,000.
Investors believe that this company will
default for sure on these bonds. Due to the
default, investors will receive only 60 cents
per dollar they are owed. Investors require an
6% return on their investment in these bonds.
(Reminder: this is the applicable discount
rate).
The yield to maturity on these bonds (assume
annual compounding) is closest to?
Select one:
A. 39.43%
В. 35.55%
C. 40.72%
D. 38.14%
E. 36.85%
Grummon Corporation has just issued zero-coupon corporate bonds with a 5-year maturity. The face value of the bond is $100. Investors believe there is a 10% chance that Grummon will default on these bonds. If Grummon does default, investors expect to receive only 20 cents per dollar they are owed. Assume investors require a 5% expected return on their investment in these bonds.
Chapter 6 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 6.1 - What is the relationship between a bonds price and...Ch. 6.1 - The risk-free interest rate for a maturity of...Ch. 6.2 - If a bonds yield to maturity does not change, how...Ch. 6.2 - Prob. 2CCCh. 6.2 - How does a bonds coupon rate affect its...Ch. 6.3 - How do you calculate the price of a coupon bond...Ch. 6.3 - How do you calculate the price of a coupon bond...Ch. 6.3 - Explain why two coupon bonds with the same...Ch. 6.4 - There are two reasons the yield of a defaultable...Ch. 6.4 - What is a bond rating?
Ch. 6.5 - Why do sovereign debt yields differ across...Ch. 6.5 - What options does a country have if it decides it...Ch. 6 - A 30-year bond with a face value of 1000 has a...Ch. 6 - Assume that a bond will make payments every six...Ch. 6 - The following table summarizes prices of various...Ch. 6 - Suppose the current zero-coupon yield curve for...Ch. 6 - Prob. 5PCh. 6 - Prob. 6PCh. 6 - Suppose a five-year, 1000 bond with annual coupons...Ch. 6 - Prob. 8PCh. 6 - Explain why the yield of a bond that trades at a...Ch. 6 - Prob. 10PCh. 6 - Prob. 11PCh. 6 - Consider the following bonds: Bond Coupon Rate...Ch. 6 - Prob. 14PCh. 6 - Prob. 17PCh. 6 - Prob. 18PCh. 6 - Prob. 19PCh. 6 - Prob. 20PCh. 6 - Prob. 22PCh. 6 - Prob. 23PCh. 6 - Suppose you are given the following information...Ch. 6 - Prob. 26PCh. 6 - Grumman Corporation has issued zero-coupon...Ch. 6 - The following table summarizes the yields to...Ch. 6 - Prob. 30PCh. 6 - Prob. 31PCh. 6 - A BBB-rated corporate bond has a yield to maturity...Ch. 6 - Prob. 33PCh. 6 - Prob. 34PCh. 6 - Prob. 35P
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