Question
Consider the following information regarding corporate bonds: Rating AAA AA A BBB BB B CCC Average Default Rate 0.0% 0.1% 0.2% 0.45% 2.2% 5.5% 12.2%
Consider the following information regarding corporate bonds:
Rating | AAA | AA | A | BBB | BB | B | CCC |
Average Default Rate | 0.0% | 0.1% | 0.2% | 0.45% | 2.2% | 5.5% | 12.2% |
Recession Default Rate | 0.0% | 1.0% | 3.0% | 3.0% | 8.0% | 16.0% | 48.0% |
Average Beta | 0.05 | 0.05 | 0.05 | 0.10 | 0.17 | 0.26 | 0.31 |
Company | Market Capitalization ($mm) | Total Enterprise Value ($mm) | Equity Beta | Debt Rating | |||
Taggart Transcontinental | $4500 | 8000 | 1.1 | BBB | |||
Rearden Metal | $3800 | 7200 | 1.3 | AAA | |||
Wyatt Oil | $2400 | 3800 | 0.9 | A | |||
Nielson Motors | $1500 | 4400 | 1.75 | BB |
Suppose that because of the large need for steel in building railroad infrastructure, Taggart Transcontinental and Rearden Metal decide to form into one large conglomerate. Your estimate of the asset beta for this new conglomerate is__________.
(Please write your answer as a number, with two decimal places. e.g. write "0.1234" as "0.12")
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