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Suppose Green Energy Corporation is planning to massively expand its manufacturing facility and will issue 15-year corporate bonds to obtain funding for the project. Prior
Suppose Green Energy Corporation is planning to massively expand its manufacturing facility and will issue 15-year corporate bonds to obtain funding for the project. Prior to issuing the corporate bonds, Green Energy Corporation must determine the yield that it must offer to successfully sell the debt securities. Upon further analysis of the key characteristics used to determine the appropriate yield of a bond, Green Energy Corporation learns the following: 1. The annualized yield on a risk-free 15-year Treasury bond is 7 percent. 2. A 1 percent credit risk premium is needed to compensate investors for credit risk. 3. A 0.4 percent liquidity premium is needed to compensate investors due to the low liquidity of the bonds. 4. A 0.5 percent tax adjustment is needed to compensate investors for a difference in tax status. What is the appropriate yield to be offered on the corporate bonds? 05.10% 08.10% 8.90% 12.20%
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