insure default bonds

Project Description:

how much would it cost to insure the bonds of blackwoods chemical against default? see section 23-1

six flags is known for the roller-coaster rides at its theme park, but the company itself has also experienced a white knuckle ride of its own. by early 2009 the price of its 9.625% bonds of 2014 had fallen to 19.5% of the face value and offered a yield to maturity of 64%. a naive investor who compared this yield with the 2% yield on treasury bonds might have concluded that the six flags debt was a wonderful investment. but the owner would earn a return of 64% on the debt only if the company repaid the bonds in full. that was looking increasingly doubtful. over the previous decade the company had recorded a series of losses, and it entered 2009 with over $2 billion of debt and negative book equity. because there was a considerable risk that the company would default in its bonds, the expected return was much less than 64%.
blackwood issued 5% note, face value is $1,000 with one year maturity
one year risk free bond is 5%
the 64% return is only if the bond is repaid in full, company losses indicate that bond will not be repaid on time, due to being 2million in debt.

would need an answer by 11:00p cst in usa
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