Question
In: Finance
In mid-2009, Rite Aid had CCC-rated, 6-year bonds outstanding with a yield to maturity of 17.3...
In mid-2009, Rite Aid had CCC-rated, 6-year bonds outstanding with a yield to maturity of 17.3 %. At the time, similar maturity Treasuries had a yield of 3 %. Suppose the market risk premium is 5 % and you believe Rite Aid's bonds have a beta of 0.31. The expected loss rate of these bonds in the event of default is 60 %. a. What annual probability of default would be consistent with the yield to maturity of these bonds in mid-2009? b. In mid-2015, Rite-Aid's bonds had a yield of 7.1 %, while similar maturity Treasuries had a yield of 1.5 %. What probability of default would you estimate now?
a. What annual probability of default would be consistent with the yield to maturity of these bonds in mid-2009?
The required return for this investment is _______%. (Round to two decimal places.)
The annual probability of default is _____%. (Round to two decimal places.)
b. In mid-2015, Rite-Aid's bonds had a yield of 7.1%, while similar maturity Treasuries had a yield of 1.5%. What probability of default would you estimate now?
The probability of default will be _______%. (Round to two decimal places.)
Solutions
jeff jeffy answered 1 year agoRelated Solutions
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Treasuries had a yield of 3%. Suppose the market risk premium is 4%
and you believe Rite Aid's bonds have a beta of 0.31. The expected
loss rate of these bonds in the event of default is 57%.
a. What annual probability of default would be consistent with
the yield to maturity of these bonds in mid-2009?
b. In mid-2015,...
In mid-2009, Rite Aid had CCC-rated, 17-year bonds outstanding with a yield to maturity of 17.3%....
In mid-2009, Rite Aid had CCC-rated, 17-year bonds outstanding
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Treasuries had a yield of 2%. Suppose the market risk premium is 6%
and you believe Rite Aid's bonds have a beta of 0.38. The expected
loss rate of these bonds in the event of default is 57%. What
annual probability of default would be consistent with the yield to
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11
-year
bonds outstanding with a yield to maturity of
17.3 %
.
At the time, similar maturity Treasuries had a yield of
4 %
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Suppose the market risk premium is
5 %
and you believe Rite Aid's bonds have a beta of
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is
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