A Firm Has a Single Issue of a Zero Coupon

question 4

Multiple Choice

A firm has a single issue of a zero coupon debt that promises to pay $90 in 4 years,and the A₀ = $100,r = 4%,σ = 25%,and δ = 0.If the asset has a 2% chance of total default,what is the yield on the bond?

• A) 8.32%
• B) 12.33%
• C) 24.36%
• D) 36.85%

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