Risky Business's outstanding debt are 6% bonds, paying interest annually and maturing 1 year from today. The

Question:

Risky Business's outstanding debt are 6% bonds, paying interest annually and maturing 1 year from today. The bonds currently sell for $569 per $1,000 par value. The company is experiencing severe financial difficulties and analysts predict that there is a 60% probability that the company will go bankrupt within the year. If bankruptcy occurs, bondholders are predicted to receive only 30% of the promised cash flow (principal plus coupon).
a. What is the current promised yield to (assuming that bondholders receive all promised)?
b. What is the current yield to assuming that default occurs?
c. What is the current expected yield to Explain why the promised yield to is not a good measure of a bond's when the probability of default is not low.
Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these... 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...