The Loughran Corporation has issued zero-coupon corporate bonds with a five-year maturity. Investors believe there is a 30% 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 6.0% 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? O A. This bond is priced at $57.91 per $100 face value with a YTM of 6.0%. B. This bond is priced at $74.73 per $100 face value with a YTM of 6.0%. C. This bond is priced at $52.31 per $100 face value with a YTM of 13.8% D. This bond is priced at $57.91 per $100 face value with a YTM of 11.5%. O E. This bond is priced at $77.50 per $100 face value with a YTM of 5.2%.
The Loughran Corporation has issued zero-coupon corporate bonds with a five-year maturity. Investors believe there is a 30% 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 6.0% 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? O A. This bond is priced at $57.91 per $100 face value with a YTM of 6.0%. B. This bond is priced at $74.73 per $100 face value with a YTM of 6.0%. C. This bond is priced at $52.31 per $100 face value with a YTM of 13.8% D. This bond is priced at $57.91 per $100 face value with a YTM of 11.5%. O E. This bond is priced at $77.50 per $100 face value with a YTM of 5.2%.
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 15P
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