Compute the promised yield to maturity and expected return to maturity on a default-risky 5-year pure-discount corporate bond that has a current price of $541.With a probability of 0.7, the issuer will repay the principal of $1,000 at maturity.However, the probability is 0.3 that the issuer will default, in which case bondholders will receive only $500 per bond.
$\begin{array}{l}
&\text { Promised } & \text { Exp. Ret. }\
& \text { Yield } & \text { to Mat. } \
\text { a. } & 17.63 \% & 13.06 \% \
\text { b. } & 17.63 \% & 9.46 \% \
\text { c. } & 13.06 \% & 9.46 \% \
\text { d. } & 13.06 \% & 3.30 \%
\end{array}$

Question

Compute the promised yield to maturity and expected return to maturity on a default-risky 5-year pure-discount corporate bond that has a current price of $541.With a probability of 0.7, the issuer will repay the principal of $1,000 at maturity.However, the probability is 0.3 that the issuer will default, in which case bondholders will receive only $500 per bond. 
$\begin{array}{l}
&\text { Promised } & \text { Exp. Ret. }\
& \text { Yield } & \text { to Mat. } \
\text { a. } & 17.63 \% & 13.06 \% \
\text { b. } & 17.63 \% & 9.46 \% \
\text { c. } & 13.06 \% & 9.46 \% \
\text { d. } & 13.06 \% & 3.30 \%
\end{array}$

Quizplus · Accepted Answer

The Answer of Compute the promised yield to maturity and expected return to maturity on a default-risky 5-year pure-discount corporate bond that has a current price of $541.With a probability of 0.7, the issuer will repay the principal of $1,000 at maturity.However, the probability is 0.3 that the issuer will default, in which case bondholders will receive only $500 per bond. 
$\begin{array}{l}
&\text { Promised } & \text { Exp. Ret. }\
& \text { Yield } & \text { to Mat. } \
\text { a. } & 17.63 \% & 13.06 \% \
\text { b. } & 17.63 \% & 9.46 \% \
\text { c. } & 13.06 \% & 9.46 \% \
\text { d. } & 13.06 \% & 3.30 \%
\end{array}$

Compute the Promised Yield to Maturity and Expected Return to Maturity