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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 2%. Suppose the market risk premium is 5% and you believe Rite Aid's bonds have a beta of 0.35. The expected loss rate of these bonds in the event of default is 53%. 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 6.8%, while similar maturity Treasuries had a yield of 1.5%. 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 1%. (Round to two decimal places.) The annual probability of default is %. (Round to two decimal places.) b. In mid-2015, Rite-Aid's bonds had a yield of 6.8%, while similar maturity Treasuries had a yield 1.5%. What probability of default would you estimate now? The probability of default will be %. (Round to two decimal places.) 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 2%. Suppose the market risk premium is 5% and you believe Rite Aid's bonds have a beta of 0.35. The expected loss rate of these bonds in the event of default is 53%. 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 6.8%, while similar maturity Treasuries had a yield of 1.5%. 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 1%. (Round to two decimal places.) The annual probability of default is %. (Round to two decimal places.) b. In mid-2015, Rite-Aid's bonds had a yield of 6.8%, while similar maturity Treasuries had a yield 1.5%. What probability of default would you estimate now? The probability of default will be %. (Round to two decimal places.)
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