Question

In​ mid-2009, Ralston Purina had​ AA-rated, six-year bonds outstanding with a yield to maturity of

3.68 %3.68%.

At the​ time, similar maturity Treasuries had a yield of

2.68 %2.68%.

a. If Ralston​ Purina’s bonds were​ risk-free, what is your estimate of the expected return for

these​ bonds?

b. If you believe Ralston​ Purina's bonds have

0.9 %0.9%

chance of default per year and that expected loss rate in the event of default is

39 %39%​,

what is your estimate of the expected return for these​ bonds?

a. If Ralston​ Purina’s bonds were​ risk-free, what is your estimate of the expected return for

these​ bonds?

The estimate of the expected return for these bonds is

nothing​%.

​(Round to two decimal​ places.)c. If you believe Ralston​ Purina's bonds have

0.9 %0.9%

chance of default per​ year, and that expected loss rate in the event of default is

39 %39%​,

what is your estimate of the expected return for these​ bonds?The estimated expected return for these bonds will be

nothing​%.

​(Round to two decimal​ places.)

Answer 1