A Bond Has an Expected Yield-To-Maturity of 12% and a 5

question 43

Multiple Choice

A bond has an expected yield-to-maturity of 12% and a 5% probability of default. If the bond defaults, the bondholder should receive 75% of the market value. The bond would be fairly priced if its default premium were

• A) 1.9%.
• B) 2.1%.
• C) 2.7%.
• D) 3.6%.

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Definitions:

Dutch University

An institution of higher education and research in the Netherlands, offering bachelor's, master's, and doctoral degrees.

Retroactive Interference

A cognitive phenomenon where newly learned information interferes with and hampers the recall of previously learned information.

Mnemonics

Memory aids or techniques that utilize associations, patterns, or systems to help recall information.

Cramming

An intense, short-term study strategy typically used to memorize large amounts of information just before an examination.