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:

Parent Corporation

A company that owns enough voting stock in another firm to control management and operations by influencing or electing its board of directors.

Subsidiary's Stock

Shares of ownership in a company which is controlled by another firm, where the controlling firm owns more than 50% of the subsidiary's stock.

Preliminary Injunction

A temporary court order issued at the beginning of a legal action, prohibiting a party from performing a specific act until a final decision is made.

Merger

The process by which two or more companies combine into one entity, often to expand market share or reduce competition.