Minmax company-comparable treasuries

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The MinMax company issues 10 year zero-coupon bonds with a $1,000 face value at a price of $ 508.35. Comparable Treasuries have a yield to maturity of 3% per year. The following is true about the bond: (all annual rates annualized using EAR and investors are expected to hold bond to maturity)

a. The credit spread for MinMax bonds is equal to 4% per year

b. If investors believe there is a 50% chance that MinMax will default and only return 50% of face value then investors expect to earn 4% per year

c. If investors believe that there is no chance of default, the price would be $ 744.09

d. a and b

e. a, b and c

Reference no: EM132467294

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