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B18. (Default risk) You buy a very risky bond that promises

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B18. (Default risk) You buy a very risky bond that promises a 9.5% coupon and return of the
$1,000 principal in 10 years. You pay only $500 for the bond.
a. You receive the coupon payments for three years and the bond defaults. After liquidating
the firm, the bondholders receive a distribution of $150 per bond at the end of 3.5
years. What is the realized return on your investment?
b. The firm does far better than expected and bondholders receive all of the promised
interest and principal payments. What is the realized return on your investment?
Submitted: 6 years ago.
Category: Homework
Expert:  Linda_us replied 6 years ago.
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Linda :

Hi Customer

Linda :

If you like my work In future you can request me by writing "FOR LINDA" in front of your post.



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Regards



Linda

Expert:  Linda_us replied 6 years ago.
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Customer: replied 6 years ago.

Linda,

 

I am satisfied with the answer...and thanks for your prompt feedback. I will call upon you when i need help.

Expert:  Linda_us replied 6 years ago.
Sure I am there whenever you need me. In future whenever you request me do put "FOR LINDA" in front of your post.

Regards

Linda

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