Taggart Transcontinental has issued at par a zero-coupon bond with a ten-year maturity.Investors believe there is a 10% chance that Taggart Transcontinental will default on these bonds.If they do default,investors expect to receive only 50 cents per dollar they are owned.If investors require an 8% return on their investment in these bonds,then the yield to maturity on these bonds will be closest to (assume annual compounding):

Question

Quizplus · Accepted Answer

B) Step #1 Price = ( .90 × $1000 + .10 × $500)/(1.06)¹⁰ = $530.457 Step #2 FV = 1000, PMT = 0, N = 10, PV = -530.475, compute I = 6.455107

Taggart Transcontinental Has Issued at Par a Zero-Coupon Bond with a Ten-Year