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:

Gradualism

A theory in evolutionary biology that posits species evolve through small, incremental changes over long periods.

Punctuated Equilibrium

Punctuated Equilibrium is an evolutionary theory proposing that species evolve rapidly during short periods of time, followed by long periods of stasis (little or no evolutionary changes).

New Species

A population of organisms that has evolved distinct characteristics, differentiating it from other species.

Intermediate Forms

Organisms or structures that show characteristics bridging two different groups, often seen in evolutionary contexts.