In mid-2009, Ralston Purina had AA-rated, six-year bonds outstanding with a yield to maturity of

3.68 %3.68%.

At the time, similar maturity Treasuries had a yield of

2.68 %2.68%.

a. If Ralston Purinas bonds were risk-free, what is your estimate of the expected return for

these bonds?

b. If you believe Ralston Purina's bonds have

0.9 %0.9%

chance of default per year and that expected loss rate in the event of default is

39 %39%,

what is your estimate of the expected return for these bonds?

a. If Ralston Purinas bonds were risk-free, what is your estimate of the expected return for

these bonds?

The estimate of the expected return for these bonds is

nothing%.

(Round to two decimal places.)c. If you believe Ralston Purina's bonds have

0.9 %0.9%

chance of default per year, and that expected loss rate in the event of default is

39 %39%,

what is your estimate of the expected return for these bonds?The estimated expected return for these bonds will be

nothing%.

(Round to two decimal places.)