How to calculate EV of this proposed investment?

[icetonez]

I think it is definately +EV and that's assuming you would get nothing from liquidation which I think is unlikey. I'm not sure, but I think you could just take for example a $100,000 investment and do this:

-100,000 * .10 v. $133,100 * .90

[DesertCat]

[ QUOTE ]
I'm not sure, but I think you could just take for example a $100,000 investment and do this:

-100,000 * .10 v. $133,100 * .90

[/ QUOTE ]

Both of our math was wrong . In your case bonds don't compound, and you won't have a 100k gain, that's just your basis. Where you were ahead of me is placing the default risk is over 3 years, not one year as I did it, which I believe is what the author meant. Teh formula should be like this

-100k*.1 + 30k*.9 = +17k, or 5.67% risk adjusted yield.

But I'm wondering if a 3.3% annual default rate isn't rather low for a junk bond. Once again, the only way to make a reasonable estimate of the bond's security is to review the company and the bond in detail.