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Old 04-20-2013, 06:45 PM
Mathew92 Mathew92 is offline
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Post Default risk and Special types of bonds

Fitch In. has bonds outstanding that have a $1000 face value and 7 years left to maturity. The bonds have a 7.7% annual coupon rate and are currently priced at $332.75. The bonds are priced so low because Fitch in filing for bankruptcy. Analyst predicts that Fitch will be forced to default on its bonds in two years and will only be able to pay bondholders 40 cents on the dollar of the face value. Analysts also predicts that Fitch will turn out to be unable to make it's interest payment.
A)What is the PROMISED YTM on Fitchs bonds?
B)What is the EXPEXTED YTM on Fitchs bonds?

Can Someone show me the steps and the finial answer?
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Old 04-21-2013, 12:54 AM
abc201879456 abc201879456 is offline
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Default Re: Default risk and Special types of bonds

at start the promised ytm=coupon-7.7% ,if you buy now Promised YTM=(c+(FV-p)/n)/(FV+p/2)=(77+(1000-332.75)/7)/(1000+332.75)/2=25.85%

For expected YTM do the following things
coupon payment =77/2=38.5
periods=4 ( since 2 years)
FV=400
in calci try this CF0=38.5,freq=4,cf1=0,freq=9,cf2=400,calcualte the ytm
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