A Zero-Coupon Bond Has a Beta of 0

question 60

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 promised rate of return on this bond? Round your answer to the nearest tenth of a percent.

• A)7.9%
• B)2.0%
• C)5.7%
• D)5.2%

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Definitions:

Global Database

A comprehensive collection of data or information accessible from multiple countries, often used for research, analysis, or business intelligence.

Surplus Materials

Excess resources or goods that are available after satisfying the planned demand or requirement.

Scrap Disposal

The process of removing, processing, and recycling waste materials generated during manufacturing or consumption.

Investment Return

The profit or loss on an investment over a specified period, expressed as a percentage of the investment's cost.