QUESTION 3 Consider the following information regarding corporate bonds: Rating Average Default Rate Recession Default Rate Average Beta | AAA 0.096 0.09% 0.05 B | A BB AA 0.09% 0.296 0.49% 2.196 8.0% 5.2% 9.996 43.0% 1.0% 3.0% 16.0% 3.0% |1.0 0.05 0.26 0.31 0.17 0.05 Rearden Metal has a bond issue outstanding with ten years to maturity, a yield to maturity of 8.6% , and a B rating. The bondholders expected loss rate in the event of default is 50% . Assuming a normal economy the expected return on Rearden Metal's debt is closest to: 4.6% 6.0% 0.6% 1.6%