If the Bond Has 10% Probability of Default and Payment

question 13

Multiple Choice

If the bond has 10% probability of default and payment under default is $400, and an investor buys the bond for $938.10. Calculate the promised yield on the bond. (assume no default)

• A) 6.6%
• B) 11.93%
• C) 5.0%
• D) None of the given values

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Definitions:

Spontaneous Recovery

The reappearance of a learned response after its apparent extinction, often occurring in the absence of further conditioning.

Extinct

A term describing a species, family, or larger group of organisms that no longer exists.

Systematic Desensitization

A behavioral therapy method used to gradually reduce phobia or anxiety through controlled exposure to the feared object or situation in conjunction with relaxation techniques.

Fear Reduction

A psychological process or intervention aimed at decreasing the intensity of fear reactions, often through techniques such as exposure therapy or cognitive restructuring.