1. Taggart Transcontinental has issued at par a zero-coupon bond with a ten-year maturity. Investors believe there is a 10% chance that Taggart Transcontinental will default on these bonds. If they do default, investors expect to receive only 50 cents per dollar they are owed. If investors require an 8% return on their investment in these bonds, then the yield to maturity on these bonds will be closest to (assume annual compounding):
A. 6.05% B. 7.15% C. 8.56% D. 8.00%
2. A newly issued 20-year maturity, zero-coupon bond is issued with a yield to maturity of 8.4% and face value $1,000. Find the imputed interest income in the first, second, and last year of the bond's life. (Do not round intermediate calculations. Round your answers to 2 decimal places.)