A corporate bond matures in one year. The bond promises interest of $50 and principal of $1,000 at maturity. Suppose the bond has a 10 percent probability of default and payment under default is $400. If an investor buys the bond for $890.19, calculate the promised yield on the bond.
A. 18 percent
B. 7 percent
C. 10.7 percent
D. 6.6 percent
Answer: A
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