Rating agencies$-$such as Standard & Poor's $($S&P$)$ and Moody's Investor Service$-$assign credit ratings to bonds based on both quantitative 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$-$grade bonds and junk bonds. Which of the following bonds is likely to be classified as an

investment$-$grade bond?

A bond with $30\%$ return on capital, total debt to total capital of $15\%,$ and $6\%$ yield

A bond with $10\%$ return on capital, total debt to total capital of $85\%,$ and $13\%$ yield

You heard that rating agencies have upgraded a bond's rating. The yield on the bond is likely to

$,$ and the bond's price will

Assume you make the following investments:

A $$10,000$ investment in a $10-$year T$-$bond that has a yield of $14\mathrm{.}00\%$

A $$20,000$ investment in a $10-$year corporate bond with an AA rating and a yield of $18\mathrm{.}20\%$

Based on this information, and the knowledge that the difference in liquidity risk premiums between the two bonds is $0\mathrm{.}40\%,$ what is your estimate of

the corporate bond's default risk premium?

$3\mathrm{.}80\%$

$5\mathrm{.}32\%$

$5\mathrm{.}70\%$

$4\mathrm{.}18\%$