0 During the recession in mid-2009, homebuilder KB Home had outstanding year bonds with a yield to maturity of 0.4% and a rating corresponding risk tree roles were 32 and the market risk premium was 5.4% stimate the expected return of KB Home's debt using two different methods. How do your results compare? (Note: the average loss rate for unsecured debt is about 60%. See annual default rates by et rating here and average debt betes by rating and marty hare) Considering the probability of default, the expected retum of the bond is (Round to two decimal places) Considering CAPM and given the beta for a 7year bond, the expected retum of the bond is Round to two decimal places) How do your results compare? (Select from the drop down menu) White both estimates wrough approximations, they both confirm that the expected retum of KB Home's debt is wel promised yield D Data Table 0 Datatole TABLE 12.2 Annual Default Rates by Debt Rating (1983-2011) TABLE 12.3 Average Debt Betas by Rating and Maturity Rating: AAA AA BBB BB B CC-C Default Rates Average 0.09 0.196 0.296 0.596 2.296 5.5% 12.29 14.1% In Recensions 0.0% 1.0% 3.096 3.0% 8.0% 16.0% 48.0% 79.00 See: "Corporate Defaults and Recovery Rates, 1920-2011," Mowi Global Cuir Adliy, February 2012 By Rating and we BAR B COC Arg Bera 15 har Avg Beta 0.01 0.06 0.07 Ser: S. Schaefer and I trebuix, Risk in Cape Structure Arbitrar. Stanford GSB working paper, 2009 Print Done Pent Done During the recession in mid-2009, homebuilder KB Home had outstanding 5-year bonds with a yield to maturity of 8.4% and a BB rating. If corresponding risk-free rat- were 3.2%, and the market risk premium was 5.4%, estimate the expected return of KB Home's debt using two different methods. How do your results compare? (Note: the average loss rate for unsecured debt is about 60%. See annual default rates by debt rating here and average debt betas by rating and maturity here Considering the probability of default, the expected retum of the bond is 1%. (Round to two decimal places.) Considering CAPM and given the beta for a 7-year bond, the expected return of the bond is % (Round to two decimal places.) How do your results compare? (Select from the drop-down menu.) While both estimates are rough approximations, they both confirm that the expected return of KB Home's debt is well its promised yield. below Enter your answer in each of the answer boxes. javasario ido Exercise (3)