1. a. Consider the following information regarding corporate bonds: XYZ plans to issue 10 -year bonds that it believes will have a BBB rating. Suppose AAA bonds with the same maturity have a 3.5% yield. Assume that the market risk premium is 5% and the expected loss rate in the event of default on the bonds is 70%. Calculate the yield that these BBB bonds will have to pay during a recession. [20 marks] b. Explain three factors that may affect equity beta. [30 marks] c. Explain how you determine the cost of debt for a company. [30 marks] d. One company has a weighted average cost of capital of 8.5%. the company's cost of equity is 11% and its pretax cost of debt is 6.1%. The tax rate is 35%. What is the company's target debt-equity ratio? [20 marks] 1. a. Consider the following information regarding corporate bonds: XYZ plans to issue 10 -year bonds that it believes will have a BBB rating. Suppose AAA bonds with the same maturity have a 3.5% yield. Assume that the market risk premium is 5% and the expected loss rate in the event of default on the bonds is 70%. Calculate the yield that these BBB bonds will have to pay during a recession. [20 marks] b. Explain three factors that may affect equity beta. [30 marks] c. Explain how you determine the cost of debt for a company. [30 marks] d. One company has a weighted average cost of capital of 8.5%. the company's cost of equity is 11% and its pretax cost of debt is 6.1%. The tax rate is 35%. What is the company's target debt-equity ratio? [20 marks]