Credit ratings affect the yields on bonds. Based on the scenario described in the following table, determine whether yields will increase or decrease and whether it will be more expensive or less expensive, as compared to other players in the market, for a company to borrow money from the bond market. Scenario XYZ Co.'s credit rating was downgraded from AA to BBB. A company uses debt to buy another company. Such an event is called a leveraged buyout. A company's financial health improves. There is an increase in the perceived marketability of a company's bonds, so the liquidity premium decreases. Impact on Yield Cost of Borrowing Money from Bond Markets

Credit ratings affect the yelds on bonds. Basyed on the scenario described in the following table, determine whether yields will increase or decrease and whether it will be more expensive or less expensive, as compared to other players in the market, for a compaiay to borrow money from the bond market. Interest rate premiums \begin{tabular}{l|c|} \hline S-year Treasury yield (T5) & 4.45% \\ \hline 10-year Treasury yield (T10) & 6.55% \\ \hline 10-year Corporate yield (C10) & 8.15% \\ Inflation Premium over 10 years ( IP10) & 3.00% \\ Maturity Risk Premium (MRP) & 0.00% \\ DRP Treasury & 0.00% \\ LP Treasury & 0.00% \\ \hline \end{tabular} DRPCs+LPCs=DRPCl10+LPCl10 Real risk-free rate, r Inflation premium over 5 years (IP5) DRP10+LP10 5-year Corporate yield (C5)