A Zero-Coupon Bond Has a Beta of 0

question 51

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 fair market value of the bond?

• A)$927.15
• B)$980.00
• C)$946.07
• D)$950.57

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Definitions:

AGI

Adjusted Gross Income (AGI) is a measure of income calculated from your gross income and used to determine how much of your income is taxable.

Depreciation

The accounting process of allocating the cost of a tangible or physical asset over its useful life, used to represent wear and tear or obsolescence.

Net Income

The amount of money remaining after all operating expenses, taxes, and deductions are taken out from total revenue.

Rental Property

Real estate property that is leased or rented to tenants, generating rental income for the owner.