Your firm has a BBB-rated corporate bond with a yield to maturity of 11.3%. A U.S. Treasury security that makes payments on the same date as your bond has a yield to maturity of 9.8%. These yields are quoted as APRs

 

with semiannual compounding. Both bonds pay semi-annual coupons at a rate of

10.7% and have five years to maturity. What is the credit spread on your BBB bond?

The credit spread on your BBB bond is 1.50% (why is this the right answer?)

27. Otterson has a total market value of $360.7 billion, no debt and a marginal tax rate of 21%. If Otterson permanently changes its leverage from no debt by taking on new debt in the amount of 19.2% of its current market value at an interest rate of 5%, what is the present value of the tax shield it will create?

The present value of the tax shield is $14.54 billion. (why is this the right answer?)

Answer rating: 100% (QA)

1 Calculating the Credit Spread on the BBB Bond Given information BBBrated corporate bond yield to m... View the full answer