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Use this table from our textbook in answering the next problem: Table 12.3 Average Debt Betas by Rating and Maturity* By Rating A and above
Use this table from our textbook in answering the next problem:
Table 12.3 Average Debt Betas by Rating and Maturity*
By Rating | A and above | BBB | BB | B | CCC |
Avg. Beta | <0.05 | 0.10 | 0.17 | 0.26 | 0.31 |
By Maturity | (BBB and above) | 1-5 year | 5-10 year | 10-15 year | >15 year |
Avg. Beta | Blank | 0.01 | 0.06 | 0.07 | 0.14 |
A company has outstanding bonds with 10 years left to maturity with a yield to maturity of 7% and a BB rating. If the risk-free rate is 3% and the market risk premium is 4%, estimate the expected return on the companys debt.
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