As a financial analyst at Bank of America Merrill Lynch, you want to find out...
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As a financial analyst at Bank of America Merrill Lynch, you want to find out how the credit risks impact the yield to maturity on a bond. A 12% bond maturing in three years is priced at 85% of the face value. Suppose that there is a 20% chance that at maturity the bond will default and you will receive only $400 payment.
As a financial analyst at Bank of America Merrill Lynch, you want to find out how the credit risks impact the yield to maturity on a bond. A 12% bond maturing in three years is priced at 85% of the face value. Suppose that there is a 20% chance that at maturity the bond will default and you will receive only $400 payment.
a. What is the bonds promised yield to maturity?
(sample answer: 15.50%)
b. What is its expected yield to maturity?
(sample answer: 15.50%)
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