You are analyzing a distressed bond with one year to maturity. The bond has a face value

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You are analyzing a distressed bond with one year to maturity. The bond has a face value of $100 and pays a coupon rate of 5 percent per year. The bond is currently trading at $80. What is the yield to maturity on the bond? If the probability of default is 35 percent, what is the cost of debt? Assume that upon default only 50 percent of face value will be recovered and that remaining coupons will not be paid. Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...
Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...
Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
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Valuation Measuring and managing the values of companies

ISBN: ?978-0470424704

5th edition

Authors: Mckinsey, Tim Koller, Marc Goedhart, David Wessel

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