You own a bond with an annual coupon rate of 8% maturing in two years and priced at 90%. Suppose the probability is 10% that at maturity the bond will default and you will receive only 43% of the promised payment. Assume a face value of $1,000.
a. What is the bond’s promised yield to maturity? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Promised yield % (Confirmed to be 14.08%)
b. What is its expected yield? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Expected yield %