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Rearden Metal has a bond issue outstanding with ten years to maturity, a yield to maturity of 8.6%, ...
EpiscoWhat
EpiscoWhat
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Rearden Metal has a bond issue outstanding with ten years to maturity, a yield to maturity of 8.6%, ...
Rearden Metal has a bond issue outstanding with ten years to maturity, a yield to maturity of 8.6%, and a B rating. The corresponding risk-free rate is 3% and the market risk premium is 6%. Assuming a normal economy, the expected return on Rearden Metal's debt is closest to:
A) 0.6%
B) 1.6%
C) 4.6%
D) 6.0%
Textbook
Corporate Finance: The Core
Edition:
4
th
Authors:
Berk, DeMarzo
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Rearden Metal has a bond issue outstanding with ten years to maturity, a yield to maturity of 8.6%, ...
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EgorGruzdev
wrote...
#1
4 years ago
C
Explanation: C) rd = rrf + β(rm - rrf) = 3% + 0.26(6%) = 4.56%
Report
EpiscoWhat
wrote...
#2
4 years ago
Rearden Metal has a bond issue outstanding with ten years to maturity, a yield to maturity of 8.6%, and a B rating. The bondholders expected loss rate in the event of default is 50%. Assuming a normal economy the expected return on Rearden Metal's debt is closest to:
A) 0.6%
B) 1.6%
C) 4.6%
D) 6.0%
Report
EgorGruzdev
wrote...
#3
4 years ago
D
Explanation: D) rd = ytm - prob(default) × loss rate = 8.6% - 5.2%(50%) = 6.00%
Report
johnpaech
wrote...
#4
4 years ago
Rearden Metal has a bond issue outstanding with ten years to maturity, a yield to maturity of 8.6%, and a B rating. The bondholders expected loss rate in the event of default is 50%. Assuming the economy is in recession, then the expected return on Rearden Metal's debt is closest to:
A) 0.6%
B) 1.6%
C) 4.6%
D) 6.0%
Report
pbrown223
wrote...
#5
4 years ago
A
Explanation: A) rd = ytm - prob(default) × loss rate = 8.6% - 16.0%(50%) = 0.6%
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