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% С. 40.72% D. 38.14% E. 36.85%
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% С. 40.72% D. 38.14% E. 36.85%
Chapter13: Long-term Liabilities
Section: Chapter Questions
Problem 3EB: Smashing Cantaloupes Inc. issued 5-year bonds with a par value of $35,000 and an 8% semiannual...
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Concept explainers
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Question
Transcribed Image Text: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%
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