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please help, all is 1 question. having a hard time here. thank you in advance! 7. Bond ratings Rating apences-such as Standard & Poor r

please help, all is 1 question. having a hard time here. thank you in advance! image text in transcribed
7. Bond ratings Rating apences-such as Standard \& Poor r Corporation(SSP), Moody's Investor Service, and Fitch Ratings-assign credit ratings to bonds based on both quartitave and qualitative factors. These ratings are considered indicators of the issuer's default risk, which impacts the bond's interest rate and the issuer's cost of debt capital, Based on these ratings, bonds are classified into investment igrade bonds and Junk bonds. Which of the felliowing bonds is likely to be classified as an investment grade bond? A bond whose issuer has a 10% return on capigal, a total debt to total capital ratio of 85%, and a 13% yleid. A bond whose issut has a 30% return on capital, a total debt to total capital ratio of 15%, and a 6% yield. rou heard that rating agencies have downgraded a bond's rating. The yeld on the bond is thely to , and the bond's price wal Assume vou make the following investments: - A 510,000 imveitment in a 10 year Thbond that yields 5.50%, and - A 820,000 investment in a 10 -year corporate bond with an bas rating and a yield of 8.80% Eased on thit intormation, and the knowledge that the difference in liquidity risk premiums between the two bonds is. 0.30%, what is rour estimate of the corporate bond's default risk premium? 3.30% 4:20% 5, 10% 3.00%

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