Question
1. In mid-2012, Ralston Purina had AA-rated, 10-year bonds outstanding with a yield to maturity of 2.05%. a) What is the highest expected return these
1. In mid-2012, Ralston Purina had AA-rated, 10-year bonds outstanding with a yield to maturity of 2.05%.
a) What is the highest expected return these bonds could have?
b) if you believe Ralston Purinas bonds have 1% chance of default per year, and that the expected loss rate in the event of default is 40%, what is your estimate of the expected return for these bonds?
2. In mid-2015, Qualcomm inc. had $11 billion in debt, a total equity capitalization of $89 billion, and an equity beta of 1.43 (as reported on Yahoo! Finance). Included in Qualcomm's assets was $21 billion in cash and risk-free securities. Assume that the risk-free rate of interest is 3% and the market risk premium is 4%
a) what is Qualcomm's enterprise value?
b) What is the beta of Qualcomm's Business assets?
c) What is Qualcomm's WACC?
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