Taggart Transcontinental has issued at par a zero-coupon bond with a ten-year maturity. Investors believe there is
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Question:
Taggart Transcontinental has issued at par a zero-coupon bond with a ten-year maturity. Investors believe there is a 10% chance that Taggart Transcontinental will default on these bonds. If they do default, investors expect to receive only 50 cents per dollar they are owed. If investors require an 8% return on their investment in these bonds, then the yield to maturity on these bonds will be closest to (assume annual compounding):
A) 8.0%
B) 6.0%
C) 7.0%
D) 6.5%
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