Find out the annual probability of default

Assignment Help Finance Basics
Reference no: EM132731601

In mid-2009, Rite Aid had CCC-rated, 6-year bonds outstanding with a yield to maturity of 17.3%. At the time, similar maturity Treasuries had a yield of 3%. Suppose the market risk premium is 5% and you believe Rite Aid's bonds have a beta of 0.31. The expected loss rate of these bonds in the event of default is 60%.

a. What annual probability of default would be consistent with the yield to maturity of these bonds in mid-2009?

b. In mid-2015, Rite-Aid's bonds had a yield of 7.1%, while similar maturity Treasuries had a yield of 1.5%. What probability of default would you estimate now?

Reference no: EM132731601

Questions Cloud

Define ways administrators might apply system theory to work : Social workers use the person-in-environment approach to understand the relationship between individuals and their physical and social environments.
Find incremental impact on year ebit : Hyperion, Inc. currently sells its latest high-speed color printer, the Hyper 500, for $350. It plans to lower the price to $300 next year. Its cost of goods
Compute the realized return and dividend yield : Compute the realized return and dividend yield on this equity investment.
Prepare briefing package with approval drafts : Prepare briefing package with approval drafts of the three IT related policies for the Employee Handbook. Your briefing package must contain
Find out the annual probability of default : In mid-2009, Rite Aid had CCC-rated, 6-year bonds outstanding with a yield to maturity of 17.3%. At the time, similar maturity Treasuries had a yield of 3%
What is the value of the tax shield-facebook : Facebook, Inc. had no debt on its balance sheet in 2014, but paid $2 billion in taxes. Suppose Facebook were to issue sufficient debt to reduce its taxes
What is the resulting annual rate : Suppose your investment is compounded at a rate of 0.5% per month. What is the resulting annual rate?
Find out account interest rate : Exactly 18.00 years from today the account is worth $1,690.00. What was the account's interest rate?
What is the value of the stock : The dividend is expected to grow at 24.38% for three years and then grow at 3.76% forever. What is the value of the stock?

Reviews

Write a Review

Finance Basics Questions & Answers

  Janet jackson will invest 30000 today she needs 222000 in

janet jackson will invest 30000 today. she needs 222000 in 21 years. what annual interest rate must she

  What are the problems associated with fundamental analysis

What are the problems associated with fundamental analysis that are considered to be advantageous for technical analysis? Discuss

  Compute the cost of common stock

Compute the Cost of Common Stock for Benchmark Corporation given the following data, End of 1st year dividend is $20, the stock is selling for $27.

  Contemporary hardware-software platform trends

In Section 5.3 (Laudon, 2015, p. 185), you'll find hardware platform trends and emerging technologies. In Section 5.4 (pp. 194), we have contemporary software

  Describe the mechanism and methodology used

Describe the mechanism and methodology used to ensure that operational needs are met through short-term financing. Explain why this methodology is important to Genesis Energy.

  Enduring change of behavior

1.Which of the following is an enduring change of behavior that results from experience?

  Most appropriate test

A national computer retailer believes that the average sales are greater for salespersons with a college degree. A random sample of 14 salespersons with a degree had an average weekly sale of $3542 last year

  What is the standard deviation of the portfolio

You wish to invest in two hedge funds: Eldora do and Shangrila. The expected return on the Eldorado hedge fund is 12%

  Estimate the cost of this acuisition to the shareholders

The book value of interest-bearing liabilities on the balance sheet of Dow Jones was $1.46 billion. Estimate the cost of this acuisition to the shareholders of Newscorp.

  Finding the value of the andersons portfolio

What is the value of the Andersons' portfolio before the rights offering? (Portfolio in this question represents stock plus cash.)

  A company purchased 25000 worth of inventory the terms of

a company purchased 25000 worth of inventory. the terms of sale were 25 net 45. whats the implicit interest if a buyer

  What is the realized rate of return for the investors

Six years ago, Bradford Community Hospital issued 20-year municipal bonds with a 7 percent annual coupon rate. The bonds were called today for a $70 call.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd