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As lower bond ratings will lead to higher interest costs, you will need to determine those costs. Go to Aswath Damodaran's web page reporting bond
As lower bond ratings will lead to higher interest costs, you will need to determine those costs. Go to Aswath Damodaran's web page reporting bond spreads by credit ratingLinks to an external site.. You will see a table of bond spreads. These spreads represent the increased yield a bond must pay over the U.S. Treasury. Choose the large-company spread for Home Depot's current rating and the three ratings below it. We will adjust these old spreads to estimate the current 10-year spread. Since these spreads are dated and averaged across all maturities, you will need to create new yield spreads for the various ratings. Use the current difference between the Home Depot bond's yield and the 10-year Treasury as the true spread for the rating. Using Excel, compute the spreads for the other ratings, by adding the difference in spreads from the table to the new true spread for Home Depot's rating. Finally, determine the yield for each rating by adding the new spread to the yield on the 10-year Treasury bond. Compute the required yields on 10-year bonds at each of the new debt levels requested
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