A Zero-Coupon Bond Has a Beta of 0

question 46

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 default premium on this bond?

• A)5.7%
• B)7.9%
• C)0.7%
• D)2.2%

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