Consider the following information regarding corporate bonds :
Rating AAA AA A BBB BB B CCC
Average default rate 0.0% 0.0% 0.2% 0.4% 2.1% 5.2% 9.9%
Recession default rate 0.0% 1.0% 3.0% 3.0% 8.0% 16.0% 43.0%
Average Beta 0.05 0.05 0.05 1.0 0.17 0.26 0.31
Rear den Mental has a bond issue outstanding with ten years to maturity, a yield to maturity of 8.6% , and a B rating. The bondholders expected loss rate in the event of default is 50%. Assuming the economy is in recession, and then the expected return on Reardon Metal's debt is closest to
1. 4.6% 2. 6.0% 3.1.6% 4.0.6%.© BrainMass Inc. brainmass.com October 25, 2018, 8:17 am ad1c9bdddf
Probability of Default = 16% (under recession for B rated ...
The solution discusses corporate finance and corporate bonds.
Corporate Finance, Bond Question, Return Earned
One year ago, you purchased a $1000 face value bond of Sox Corp. The bond carries a coupon rate of 6%, and the coupons are paid annually. At the time of your purchase, the bond had three years remaining until maturity and a yield to maturity (YTM) of 6%. The current YTM is 4%. If you sell your bond today, calculate the return you will have earned.View Full Posting Details