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    Promised Yield on the Bond Calculation

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    Consider a one-year, $1000, zero-coupon bond issued. Assume that the bond payoffs are uncertain. There is a 50% chance that the bond will repay its face value in full and a 50% chance that the bond will default and you will receive $900. Thus, you would expect to receive $950. Because of the uncertainty, the discount rate is 5.9%. Calculate the promised yield on the bond.

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    Solution Summary

    This solution shows how to calculate the promised yield on a bond.

    $2.19

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