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The market yield to maturity on a risky bond is currently listed at 14.50 percent. The risk-free interest rate is estimated to be 9.25 percent. What is the default risk premium, all other factors removed? The promised yield on this bond is 15 percent. A certain investor looking at this bond estimates there is a 25 percent probability the bond will pay 15 percent at maturity, a 50 percent probability it will pay a 10 percent return, and a 25 percent probability it will yield only 5 percent. What is the bond's expected yield? What is this investor's anticipated default loss? Will the investor buy this bond?

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M951058

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