Taggart Transcontinental Has Issued at Par a Zero-Coupon Bond with a Ten-Year

question 104

Multiple Choice

Taggart Transcontinental has issued at par a zero-coupon bond with a ten-year maturity.Investors believe there is a 10% chance that Taggart Transcontinental will default on these bonds.If they do default,investors expect to receive only 50 cents per dollar they are owed.If investors require an 8% return on their investment in these bonds,then the yield to maturity on these bonds will be closest to (assume annual compounding) :

• A)6.0%.
• B)6.5%.
• C)7.0%.
• D)8.56%.

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Definitions:

Revoke

To officially cancel or withdraw a right, permission, or offer, rendering it no longer valid or in effect.

Partial Revocation

A concept in wills and trusts law where a testator can revoke or cancel a portion of the will while leaving the rest intact.

Execution

The process of carrying out a plan, order, or a legal document, like the signing and enacting of a will or a legal judgment.

Probate Process

The legal procedure through which a deceased person's will is validated, their debts are paid, and their assets are distributed to beneficiaries.