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johnpaech johnpaech
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6 years ago
Taggart Transcontinental has issued at par a zero-coupon bond with a ten-year maturity. Investors believe there is a 10% chance that Taggart Transcontinental will default on these bonds. If they do default, investors expect to receive only 50 cents per dollar they are owed. If investors require an 8% return on their investment in these bonds, then the yield to maturity on these bonds will be closest to (assume annual compounding):
A) 6.0%
B) 6.5%
C) 7.0%
D) 8.56%
Textbook 
Corporate Finance: The Core

Corporate Finance: The Core


Edition: 4th
Authors:
Read 2975 times
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Replies
wrote...
#1
6 years ago
D
Explanation:  D) Step #1   Price = (.90 × $1000 + .10 × $500)/(1.08)10 = $440.033
Step #2    FV = 1000, PMT = 0, N = 10, PV = -440.033, compute I = 8.56%
johnpaech Author
wrote...
#2
5 years ago
This course drove me insane!
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