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In mid-2012, Ralston Purina had AA-rated, 10-year bonds outstanding with a yield to maturity of 1.93 %1.93%. a. What is the highest expected return these
In mid-2012, Ralston Purina had AA-rated, 10-year bonds outstanding with a yield to maturity of 1.93 %1.93%. a. What is the highest expected return these bonds could have? b. At the time, similar maturity Treasuries had a yield of 0.93 %0.93%. Could these bonds actually have an expected return equal to your answer in part (a)? 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 58 %58%, what is your estimate of the expected return for these bonds?
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