A zero-coupon bond has a beta of 0.15 and promises to pay $5,000 next year with a
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A zero-coupon bond has a beta of 0.15 and promises to pay $5,000 next year with a probability of 96%, $1,000 with a probability of 2%, and there is a 2% probability of total default. One-year Treasury securities are yielding 4%, and the expected return on the market is 10%. What is the time premium for this bond investment?
(A) 4.0%
(B) 5.3%
(C) 5.4%
(D) 6.0%
Related Book For
Macroeconomics Principles and Applications
ISBN: 978-1111822354
6th edition
Authors: Robert E. Hall, Marc Lieberman
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