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It is the heart of the financial crisis and Lehman brothers istrying to raise money. They issue a zero-coupon bond with a facevalue of $1000 and a term of 1 year. However, you expect thatLehman will go bankrupt with probability 75%, in which case you get$0 in one year rather than the full $1000. Only with probability25% do you receive the full $1000. If Lehman has an opportunitycost of capital of 20%, how much are you willing to pay for thebond? What is the yield-to-maturity of the bond?A. $208.33 ; 20%B. $208.33 ; 380%C. $833.33 ; 20%D. $833.33 ; 380%
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