× Didn't find what you were looking for? Ask a question

Top Posters
Since Sunday
p
20
17
C
11
9
8
r
8
m
8
d
7
e
7
d
7
C
7
l
6

# Rearden Metal has a bond issue outstanding with ten years to maturity, a yield to maturity of 8.6%, ...

wrote...
Posts: 268
Rep: 3 0
A year 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 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: 4th
Authors:
5 Replies

### Related Topics

Replies
wrote...
A year ago
 CExplanation:  C) rd = rrf + β(rm - rrf) = 3% + 0.26(6%) = 4.56%
wrote...
A year 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%
wrote...
A year ago
 DExplanation:  D) rd = ytm - prob(default) × loss rate = 8.6% - 5.2%(50%) = 6.00%
wrote...
A year 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%
wrote...
A year ago
 AExplanation:  A) rd = ytm - prob(default) × loss rate = 8.6% - 16.0%(50%) = 0.6%
Explore
Save Time