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Question
You are considering buying a discount bond that costs $1,000 today and pays you $1,200 in one year. However, there is a 10 percent chance that the company issuing the bond will go bankrupt and not pay you your interest or return your principal. What is the expected return on the bond?a. 20 percent.
b. 10 percent.
c. 8 percent.
d. −4 percent.
Answer
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