Issued zero-coupon corporate bonds with five-year maturity

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Reference no: EM131622163

Grummon Corporation has issued zero-coupon corporate bonds with a five-year maturity (assume $100 face value bond). Investors believe there is a 15% chance that Grummon will default on these bonds. If Grummon does default, investors expect to receive only 40 cents per dollar they are owed. If investors require a 6% expected return on their investment in these bonds, what will be the

a. price of these bonds?

b. yield to maturity on these bonds?

Note: Assume annual compounding.

Reference no: EM131622163

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