Question

A junk bond with a face value of $115 and a beta of 0.6 will default...

A junk bond with a face value of $115 and a beta of 0.6 will default with 30% probability. If it does, investors receive only 50% of what is due to them. The risk-free rate is 3.4% per year and the market risk premium is 8.2% per year. What is the promised rate of return of this bond?

Select one:

a. Promised return 29.44

b. Promised return 31.44

c. Promised return 27.44

d. Promised return 25.44

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
T/F a. The one-year default rate on junk bonds reached double-digits in 1991 and has never...
T/F a. The one-year default rate on junk bonds reached double-digits in 1991 and has never since exceeded even 4%. ____ b. The one-year default rate on investment-grade debt averages about 2%. _____ c. Most defaults occur in recessions when investment-grade firms experience a large drop in revenue._____ d. A bank that buys the CDX North America contract can reduce its transactions costs relative to buying protection on all 125 single reference names.___ e. The typical spread on a junk...
The face value of the bond is paid at the maturity of the bond. True False...
The face value of the bond is paid at the maturity of the bond. True False Which of the following is used as a discount rate while calculating the bond price? Yield to Maturity (YTM) Coupon Rate Face Value None Coupon payments are determined by multiplying face value of the bond with the coupon rate. True False Which of the following explains the differences in interest rates? The length of the investment (maturity premium). The level of risk of the...
1. The face value of the bond is paid at the maturity of the bond. True...
1. The face value of the bond is paid at the maturity of the bond. True or false? 2. Which of the following is used as a discount rate while calculating the bond price? Yield to Maturity (YTM) Coupon Rate Face Value None 3. Coupon payments are determined by multiplying face value of the bond with the coupon rate. True or false? 4. Which of the following explains the differences in interest rates? The length of the investment (maturity premium)....
The estimated beta for RDG is 0.74. The risk free rate of return is 4 percent...
The estimated beta for RDG is 0.74. The risk free rate of return is 4 percent and the Equity Risk Rremium is 5 percent. What is the required rate of return for RDG using the CAPM? 15.2% 12.3% 10.1% 7.7% MDX has a current beta of 6. The market risk premium is 7 percent and the risk-free rate of return is 3 percent. By how much will the cost of equity increase if the company expands their operations such that...
A zero-coupon bond has a beta of 0.3 and promises to pay $1000 next year with...
A zero-coupon bond has a beta of 0.3 and promises to pay $1000 next year with a probability of 95%. If the bond defaults, it will pay nothing. One -year Treasury securities are yielding 2%, and the equity premium is 5%. What is the promised rate of return on this bond? Round your answer to the nearest tenth of a percent. 6.9% 8.0% 8.2% 8.9%
A bond will payoff $2000 with a probability of 80% and will pay off only $500...
A bond will payoff $2000 with a probability of 80% and will pay off only $500 with a probability of 20% next year. The risk-free rate of return is 3%. What is the appropriate promised yield (return) on this bond? Select one: a. Promised return = 1.18% b. Promised return = 31.18% c. Promised return = 11.18% d. Promised return = 21.18%
Suppose you purchase 5-year annual coupon bond in the primary market. The face value of the...
Suppose you purchase 5-year annual coupon bond in the primary market. The face value of the bond is $1000. The current risk-free interest rate is 2%. The bond belongs to an asset class appropriated a 3% risk premium. a) After a year has passed, you collect your coupon payment. At that point, a new investment becomes available to you and you decide to sell your bond in the secondary market. By the time of the sale, the economic outlook has...
Suppose you purchase 5-year annual coupon bond in the primary market. The face value of the...
Suppose you purchase 5-year annual coupon bond in the primary market. The face value of the bond is $10,000. The current risk-adjusted interest rate is 2% bond belongs to an asset class appropriated a 3% risk premium. a) After a year has passed, you collect your coupon payment. At that point, a new investment becomes available to you and you decide to sell your bond in the secondary market. By the time of the sale, the economic outlook has improved...
Michael Jordan purchased a 3-year bond with the face value of 20,000 in the primary market....
Michael Jordan purchased a 3-year bond with the face value of 20,000 in the primary market. The current risk-free interest rate was 0.25%, and a risk premium on that bond is 3%. A year later after collecting his yearly coupon payment, Mr. Jordan decided to sell that bond in the secondary market. By that time, the economic situation has improved, and the risk-free interest rate has risen to 1%. What is Mr. Jordan's rate of return for the one-year period...
Stock D has a beta value of 3.4. It pays annual dividends, of $90, starting one...
Stock D has a beta value of 3.4. It pays annual dividends, of $90, starting one year from today. If the risk-free return is currently .5%, and the equity risk premium is 6%, what is the present value of the stock? Select one: a. 430.6 b. 441.17 c. 18,000 d. 354.3 e. 1,384.6
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT