Question: Michael M specializes in buying high risk commercial paper his required

Michael M. specializes in buying high-risk commercial paper; his required return on these investments is 12 percent per year. He is considering buying some 60-day paper from Collingwood Corp. with a promised yield of 9 percent per year. However, Michael believes there is a 1-percent chance that Collingwood will default on this debt, in which case he would only recover 80 percent of the face value. How much will Michael be willing to pay for each $1,000 par value of this paper?

  • CreatedFebruary 25, 2015
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