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The Dunley Corp. plans to issue 5-year bonds. It believes the bonds will have a B rating and can be issued at a yield-to-maturity (YTM)
The Dunley Corp. plans to issue 5-year bonds. It believes the bonds will have a B rating and can be issued at a yield-to-maturity (YTM) of 7%. Use the data in the table below:
Estimate the debt cost of capital of Dunley during average economic times assuming an expected 60% loss rate in the event of default.
The debt cost of capital of Dunley is [a]%.
Rating: AAA AA A BBB BB B CCC CC-C Default Rate: Average 0.0% 0.1% 0.2% 0.5% 2.2% 5.5% 12.2% 14.1% In Recessions 0.0% 1.0% 3.0% 3.0% 8.0% 16.0% 48.0% 79.0% Source: Corporate Defaults and Recovery Rates, 19202011," Moody's Global Credit Policy, February 2012Step by Step Solution
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