Jim's Tire Incorporated issued BBB bonds two years ago that provided a yield to maturity of 11.5%. Long-term risk-free government bonds were yielding 8.7% at that time.
The current risk premium on BBB bonds versus government bonds is half of what it was two years ago. If the risk-free long-term government bonds are currently yielding 7.8%, then at what rate should Jim's Tire expect to issue new bonds?© BrainMass Inc. brainmass.com June 4, 2020, 12:31 am ad1c9bdddf
YTM on BBB bonds = 11.5%
Long-term risk-free government bonds = 8.7%
This post discusses what is the expected rate to issue new bonds, if the risk-free long-term government bonds are currently yielding 7.8%