Question
In mid-2009, Rite Aid had CCC-rated, 9-year bonds outstanding with a yield to maturity of 17.3%. At the time, similar maturity Treasuries had a yield
In mid-2009, Rite Aid had CCC-rated, 9-year bonds outstanding with a yield to maturity of 17.3%. At the time, similar maturity Treasuries had a yield of 3%. Suppose the market risk premium is 5%and you believe Rite Aid's bonds have a beta of 0.34. The expected loss rate of these bonds in the event of default is 60%.
a. What annual probability of default would be consistent with the yield to maturity of these bonds in mid-2009?
b. In mid-2015, Rite-Aid's bonds had a yield of 7.2%, while similar maturity Treasuries had a yield of 1.4%. What probability of default would you estimate now?
a. What annual probability of default would be consistent with the yield to maturity of these bonds in mid-2009?
The required return for this investment is nothing %. (Round to two decimal places.)
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Technology And Finance Challenges For Financial Markets Business Strategies And Policy Makers
Authors: Morten Balling, Frank Lierman, Andy Mullineux
1st Edition
041529827X, 978-0415298278
