Consider a zero-coupon corporate bond

Assignment Help Microeconomics

Reference no: EM131035017

Consider a zero-coupon corporate bond that promises to pay a return of 12% next period. Suppose that there is a 20% chance that the issuing company will default on the bond payment, in which case there is an equal chance of receiving a return of either 8% or 0%.

(i) Define "shortfall probability"?

(ii) Calculate values for the following measures of investment risk:

(a) downside semi-variance

(b) shortfall probability based on the risk-free rate of return of 8.5%

Reference no: EM131035017

Questions Cloud

What is the probability of randomly drawing gray : A ball is drawn from at random from a container that holds 8 yellow balls numbered 1-8, 6 orange balls numbered 1 to 6, & 10 gray balls numbered 1 to 10. What is the probability of randomly drawing "gray" OR "8" when drawing a single ball ?

Determine the minimum coefficient of static friction at a : determine the minimum coefficient of static friction at A and B so that the roller remains selflocking, regardless of the magnitude of force P applied to the belt. Neglect the weight of the roller and neglect friction between the belt and the vert..

How long will it take to produce the optimal quantity : Ross White wants to reconsider his decision of buying the brackets and is considering making the brackets in-house. he has determined that set-up costs would be $25 in machinist time and lost production time, Calculate the daily demand rate. Calcualt..

One requirement for a european economy for joining the euro : One requirement for a European economy for joining the euro in 1999 was a cut in government deficit. Based on European Economy data as regards current account balances (CA), private savings, private investment, government spending and taxes (all as p..

Consider a zero-coupon corporate bond : Consider a zero-coupon corporate bond that promises to pay a return of 12% next period. Suppose that there is a 20% chance that the issuing company will default on the bond payment, in which case there is an equal chance of receiving a return of eith..

Display diminishing marginal productivity to capital : Why does the Solow growth model display diminishing marginal productivity to capital?

Number of different ethicists-philosophers and their ideas : Discusses a number of different ethicists and philosophers and their ideas. Choose one of those philosophers you found most interesting. Pick out one short, interesting quotation from the textbook about the philosopher, or by the philosopher, and dis..

How will rainbow writer respond to odeon''s two possible : Refer to Figure 14-3. How will Rainbow Writer respond to Odeon's two possible offers?

What steps do you take to handle the media : On Saturday, September 13, a tropical depression developed in the Atlantic Ocean - nearly 2,000 miles away from the Southeastern shores of the United States. Meteorologists at the National Hurricane Center assert that it is far too early to determine..

User Account

All Pages