Taggart Transcontinental Has Issued at Par a Zero-Coupon Bond with a Ten-Year

question 93

Multiple Choice

Taggart Transcontinental has issued at par a zero-coupon bond with a ten-year maturity.Investors believe there is a 10% chance that Taggart Transcontinental will default on these bonds.If they do default,investors expect to receive only 50 cents per dollar they are owned.If investors require an 8% return on their investment in these bonds,then the yield to maturity on these bonds will be closest to (assume annual compounding) :

• A) 6.0%
• B) 6.5%
• C) 7.0%
• D) 8.0%

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