Here is a hint for problem 18. Let's say that there is a 50% probability that...

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Here is a hint for problem 18. Let's say that there is a 50% probability that the company can meet its interest payment and a 50% probability that it cannot. In this case, the yield to maturity for the bond is: (.50 x .12)+(.50 x .15) = .06 +.075 = .135 or 13.5%. 18. If investors are confident that a company can meet its interest payments, the yield to maturity on its bonds should be 12%, but if investors are not confident that the company can meet its interest payment, the yield to maturity should be 15%. What are the different yields to maturity for the following probabilities of 'can meet' and 'can't meet'? a. Can meet, 60%; Can't meet, 40% b. Can meet, 50%; Can't meet, 50% c. Can meet, 30%; Can't meet, 70% Here is a hint for problem 18. Let's say that there is a 50% probability that the company can meet its interest payment and a 50% probability that it cannot. In this case, the yield to maturity for the bond is: (.50 x .12)+(.50 x .15) = .06 +.075 = .135 or 13.5%. 18. If investors are confident that a company can meet its interest payments, the yield to maturity on its bonds should be 12%, but if investors are not confident that the company can meet its interest payment, the yield to maturity should be 15%. What are the different yields to maturity for the following probabilities of 'can meet' and 'can't meet'? a. Can meet, 60%; Can't meet, 40% b. Can meet, 50%; Can't meet, 50% c. Can meet, 30%; Can't meet, 70%

Answer rating: 100% (QA)

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