You would like to invest on two different bonds a and ba it, Ask an Expert

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You would like to invest on two different bonds: A and B.

A: It has no default risk. Its current price is $958.25. Its will be $942.70 a year from today. It has an annual coupon payment of $80.

B: It is a one-year bond with a promised yield of 12%. It has face value of $1,000, coupon payment of $100 and is expected to pay only $750 at the maturity date in case of default.

a) What is the default probability of bond B?

b) You invest 30% of your money on A and 70% on B today. What is the expected return (for one year) on your investment?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92317260

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