Question
QUESTION 4 At the end of 2019, Treefern Ltd. had BBB-rated, 5-year bonds outstanding with a yield to maturity of 15%. At the time, government
QUESTION 4
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At the end of 2019, Treefern Ltd. had BBB-rated, 5-year bonds outstanding with a yield to maturity of 15%. At the time, government bonds with similar maturity had a yield of 2%. Suppose the expected return of the market portfolio is 7% and you believe Treefern Ltd.s bonds have a beta of 0.45. If the expected loss rate of these bonds in the event of default is 55%. What annual probability of default would be consistent with the yield to maturity of Treefern Ltd.s bonds at the end of the year 2019?
A. 22.7%
B. 20.3%
C. 23.4%
D. 19.6%
QUESTION 5
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At the end of 2019, Treefern Ltd. had BBB-rated, 5-year bonds outstanding with a yield to maturity of 12.5%. At the time, government bonds with similar maturity had a yield of 2%. Suppose the expected return of the market risk premium is 7% and you believe Treefern Ltd.s bonds have a beta of 0.60. If the expected loss rate of these bonds in the event of default is 45%. What annual probability of default would be consistent with the yield to maturity of Treefern Ltd.s bonds at the end of the year 2019?
A. 19.6%
B. 14.0%
C. 16.7%
D. 20.3%
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Lecture Notes In Introduction To Corporate Finance Volume 1
Authors: Ivan E Brick
1st Edition
9813149892, 9789813149892
