Suppose a bond has three years to maturity. It is a zero-coupon bond and a face value (principal) of $1000.  There is a 40% probability that it will pay the face value at maturity, a 40% probability that it will only pay $800, and a 20% probability that it will pay nothing. 

If its price is $604.53, What is its expected rate of return and what is its yield to maturity?

Answer rating: 100% (QA)

To calculate the expected rate of return we need to find the weighted average of the possible return... View the full answer