The Loughran Corporation has issued zero-coupon corporate bonds with a five-year maturity. Investors believe there...
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The Loughran Corporation has issued zero-coupon corporate bonds with a five-year maturity. Investors believe there is a 20% chance that Loughran will default on these bonds. If Loughran does default, investors expect to receive 25% of their promised payoff at maturity (e.g., $0.25 cents per dollar they are promised). If investors require a 6.0% expected return on their investment in these bonds, which of the following statements most accurately describes the price (per $100 face value) and current YTM of these bonds? A. This bond is priced at $63.52 per $100 face value with a YTM of 6.0%. B. This bond is priced at $59.78 per $100 face value with a YTM of 10.8% C. This bond is priced at $74.73 per $100 face value with a YTM of 6.0%. D. This bond is priced at $85.00 per $100 face value with a YTM of 3.3%. O E. This bond is priced at $63.52 per $100 face value with a YTM of 9.5%
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