EBK CORPORATE FINANCE
EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103145947
Author: 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 return on their investment in these bonds, what will be the price and yield to maturity on these bonds?

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The Loughran Corporation has issued zero-coupon corporate bonds with a five-year maturity. Investors believe there is a 20% 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 8.0% 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 $54.45 per $100 face value with a YTM of 12.9% OB. This bond is priced at $68.06 per $100 face value with a YTM of 8.0%. OC. This bond is priced at $57.85 per $100 face value with a YTM of 8.0%. OD. This bond is priced at $57.85 per $100 face value with a YTM of 11.6%. OE. This bond is priced at $85.00 per $100 face value with a YTM of 3.3%.
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.
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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EBK CORPORATE FINANCE

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Bond Valuation - A Quick Review; Author: Pat Obi;https://www.youtube.com/watch?v=xDWTPmqcWW4;License: Standard Youtube License