In January, 2002, Jones Company issues a pure-discount bond with a promised payment of X=$1000 that matures in T=5 years. The market price of the bond is P=$777 . The bond is default- risky. Specifically, the probability is 0
8 that Jones Company will pay the full amount of X at maturity, and is 0.2 that the firm will default, in which case the payoff to bondholders will be only $555 . Calculate the bond's promised yield to maturity, y, and expected return to maturity, rD.
y rD
a. 8.18% 5.18%
b. 5.18% 5.18%
c. 8.18% 3.23%
d. 5.18% 3.23%
e. 5.18% 1.57%
FORMULAS: y = [X/P]1/T –1; rD = [E(PAY)/P]1/T –1, where E(PAY)= p[X] + (1-p)[X']
D
You might also like to view...
__________ analysis is used by marketing researchers to describe the sample dataset in such a way as to portray the typical respondent and to reveal the general pattern of responses.
a) Differences b) Association c) Predictive d) Descriptive
On June 30, 2017, Stephans, Inc showed the following data on the equity section of their balance sheet
Stockholders' equity Common stock, $1 par; 199,000 shares authorized, 157,000 shares issued and outstanding $157,000 Paid-In Capital in Excess of Par-Common $262,000 Retained Earnings 957,000 Total Stockholder's Equity $1,376,000 On July 1, 2017, the company declared and distributed a 6% stock dividend. The market value of the stock at that time was $14 per share. Following this transaction, what is total stockholders' equity? A) $1,376,000 B) $1,558,140 C) $1,302,860 D) $1,208,840