A Zero-Coupon Bond Has a Beta of 0

question 39

Multiple Choice

A zero-coupon bond has a beta of 0.1 and promises to pay $1,000 next year with a probability of 98%. If the bond defaults, it will pay nothing. One-year Treasury securities are yielding 5%, and the equity premium is 7%.
-Refer to the information above. What is the time premium for this bond investment?

• A)0.7%
• B)5.0%
• C)2.9%
• D)5.7%

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Definitions:

Small Intestine

A part of the gastrointestinal tract between the stomach and large intestine that is involved in digestion and absorption of nutrients.

Skeletal Muscle

A type of striated muscle tissue that is attached to bones and is responsible for voluntary movements in the body.

Smooth Muscle

Involuntary, non-striated muscle found in walls of internal organs and blood vessels, controlling their movements and flow.

Lymph Movement

The process whereby lymph circulates throughout the lymphatic system, aiding in the removal of waste and the transportation of lymphocytes.