A zero-coupon bond has a beta of 0.1 and promises to pay $1,000 next year with a
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A zero-coupon bond has a beta of 0.1 and promises to pay $1,000 next year with a probability of 98%. If the bond defaults, it will pay nothing. One-year Treasury securities are yielding 5%, and the equity premium is 7%. What is the default premium on this bond?
A) 0.7% | ||
B) 2.2% | ||
C) 5.7% | ||
D) 7.9% |
Expert Answer:
Answer B Explanation Default premium promised rate of returnrequired return Calculation of require... View the full answer
Related Book For 
Macroeconomics Principles and Applications
ISBN: 978-1111822354
6th edition
Authors: Robert E. Hall, Marc Lieberman
Posted Date:
