Grummon Corporation has issued zero-coupon corporate bonds with a five-year maturity (assume
$100 face value bond). Investors believe there is a 20% chance that Grummon will default on these bonds. If Grummon does default, investors expect to receive only 50 cents per dollar they are owed. If investors require a 6% expected return on their investment in these bonds,
A. What will be the price of these bonds?
B. What will be the yield to maturity on these bonds, assuming the default does not materialize?