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Grummon Corporation has issued zero-coupon corporate bonds with a five-year maturity (assume $ 100 face value bond). Investors believe there is a 10 % chance that Grummon will default on these bonds. If Grummon does default, investors expect to receive only 50 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.
Which items would be classified as liabilities?
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You would like to estimate the weighted average cost of capital for a new airline business.
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What is the highest daily fee the company should be willing to pay to eliminate its float entirely?
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