2. Using Morningstar, look up the BlackRock Corporate High Yield Fund (ticker HYT).

a) Write the balance sheet for HYT (Note: You just need a simple balance sheet like what we have done in class. It should have the aggregate equity, debt, and assets. Everything you need is on the main Morningstar page for HYT- you dont need their full, detailed financial statements).

b) Assume HYT takes out an additional $50M in debt to make additional investments. What is the new leverage ratio (you may want to recreate the balance sheet).

c) HYT invests primarily in high-yield (and therefore high-risk) bonds. Assume these bonds pay an average of 8%, and assume HYT acquires debt at an interest cost of 1.5%. If you invest in the fund, what is your expected annual percent return net of the interest costs? Use the leverage from part b and calculate on a portfolio basis instead of a per-share basis (this will make it easier to deal with interest costs).

d) Continuing from part (b), a wave of corporate bond defaults occurs, and the value of HYTs investments falls by $100M. On a percentage basis, what is the return to 1) the portfolio and 2) HYTs shareholders as a result of this default wave?