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What is the expected yield on the bond

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Question - Suppose that a corporate bond has one year to maturity. The bond has a par value of $1,000 and its annual coupon rate is 5%. After evaluating the risk, an investor concludes that the bond has a 20 percent probability of default and payment under default is $500. The current price of the bond is $900. If the investor decides to buy the bond now, what is the expected yield on the bond?

a. 10.5%

b. 16.7%

c. 4.4%

d. 5.7%

Reference no: EM133060338

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