Explanation:
For a zero-coupon bond, the bondholder's bankruptcy claim is the present value of the promised principal repayment at the settlement date, discounted at the valid market yield assumption. Using the stated 6.0% YTM with semiannual compounding, the claim is computed from settlement to maturity. With the implied remaining time and a 30/360 day count, the present value is approximately $77.40 per $100 face value, so option B is correct. The other choices do not match the required discounting approach.
Ultimate access to all questions.
No comments yet.
Q-504.3. On Jan 1st, 2010, Acme Corporation (a U.S. corporation) issued a zero-coupon bond with an original maturity of ten (10) years on Jan 1st, 2026. The original yield to maturity (YTM, yield) was 6.0% with semi-annual compounding. In 2015, Amce filed for bankruptcy with a bankruptcy filing date of September 1st, 2015 (which becomes the settlement date). The bankruptcy court determines that the original yield is a valid market yield assumption for purposes of unpaid interest. Which of the following is represents the bondholder's claim at settlement?
A
$55.37 (day count is not relevant)
B
$77.40 based on 30/360 day count
C
$83.81 based on act/act day count
D
$100.00 (day count is not relevant)