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You buy a very risky bond that promises a 11% coupon and return of the $1,000 principal in 10 years. You pay only $750 for the bond. You receive the coupon payments for four years and the bond defaults. After liquidating the firm, the bondholders receive a distribution of $250 per bond at the end of 4.5 years (last payment includes coupon payment). What is the realized rate of return on your investment? The firm does far better than expected and bondholders receive all of the promised interest and principal payments. What is the realized rate of return on your investment?

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Basic Finance, Finance

Category:- Basic Finance
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