Grummon Corporation has issued zero-coupon corporate bonds with a five-year maturity (assume $ 100 face value bond). Investors believe there is a 20% 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.
a. What will be the price of these bonds?
The price of these bonds is $ (Round to the nearest cent.)
b. What will be the yield to maturity on these bonds, assuming the default does not materialize?
The yield to maturity on these bonds is %. (Round to two decimal places.)