The Makita Corp. plans to issue 5-year bonds. It believes the bonds will have a BBB rating. Suppose AAA bonds with the same maturity have a 4.5% yield. Assume the market risk premium is 6%. Use the data on default rates and average debt betas below." Annual Default Rates by Debt Rating: 1983-2011 Rating: AAA 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% Average Debt Betas by Rating and Maturity By Rating A and above BBB BB B CCC Avg. Beta 15 year Avg. Beta 0.01 0.06 0.07 0.14 a. Estimate the yield Makita will have to pay, assuming an expected 60% loss rate in the event of default during average economic times. What spread over AAA bonds will it have to pay? b. Estimate the yield Makita would have to pay if it were a recession, assuming the expected loss rate is 80% at that time, but the beta of debt and market risk premium are the same as in average economic times. What is Makita's spread over AAA now? C. In fact, one might expect risk premia and betas to increase in recessions. Redo part (b) assuming that the market risk premium and the beta of debt both increase by 20%; that is, they equal 1.2 times their value in recessions