User Account

All Pages

What is the approximate probability of default

Assignment Help Finance Basics
Reference no: EM133056705

Assume an IBM zero-coupon bond maturing in 1 year is trading at price of $982.80. Further assume the risk free rate is 1.30%, and the risk premium is 40 basis points (i.e., .40%).

a) If the market is assuming a recovery rate of 50% should IBM default, what is the approximate probability of default?

b) Assuming no change in the probability of default from a) immediately above, what is the implied recovery rate if the bonds are trading at a price of $982.32?

Reference no: EM133056705

Questions Cloud

What is weighted average cost of capital : A firm has only two funding sources, debt and equity. Their percentage of debt is 47%, their tax rate is 21.9%, and their pretax cost of debt is 4%.
Outstanding loan balance : Federal Housing Administration (FHA) provides graduated payment mortgages for homebuyers who currently have low to moderate incomes but expect them to increase
What are essential characteristics of a financial liability : What are the essential characteristics of a financial liability? Explain the modification of terms under the debt structuring
Show the debt distribution and outstanding bonds issued : The company is AT&T answer the following questions, 1) Show the company's expected earnings for this and next year.
What is the approximate probability of default : Assume an IBM zero-coupon bond maturing in 1 year is trading at price of $982.80. Further assume the risk free rate is 1.30%, and the risk premium is 40 basis p
What is the monthly payment : At what payment number does the amount going to the actual principle exceed the amount allocated toward paying interest?
Pursue stock-based acquisition : In the late 1990s, many companies were pursuing acquisition-based growth strategies. A notable example is the acquisition of MCI by WorldCom, which proved to be
Thinking about acquiring lithium power corp : Tesla Inc. is thinking about acquiring Lithium Power Corp. Tesla's VP thinks that it is going to add value to the firm because Lithium Power has a relatively lo
What is the percentage price change of bonds : Bond J has a coupon of 7.4 percent. Bond K has a coupon of 11.4 percent.

Reviews

Write a Review

Finance Basics Questions & Answers

  Determine the latest book value per share

Using the resources at your campus or public library or on the Internet, elect any 3 common stocks you like and determine the latest book value per share, earnings per share, dividend payout ratio, and dividend yield for each.

  What is the discounted payback period

The initial outlay or cost for a four-year project is $1,000,000. The respective cash inflows for years 1, 2, 3 and 4 are: $500,000, $200,000, $300,000, $300,000. What is the discounted payback period if the discount rate is 10%?

  Which plan is more risky for an individual employee

Which plan is more risky for an employer? Which plan is more risky for an individual employee? Which provides the individual employee with more resources?

  Determining the contribution margin for each unit

Air Purifier, Inc., computes its break-even point strictly on the basis of cash expenditures related to fixed costs.

  Determine annual financing cost

Walters Manufacturing Corporation has been approached by a commercial paper dealer offering to sell an issue of commercial paper for the company. The dealer indicates that Walters could sell a $5 million issue maturing in 182 days at an interest rate..

  What is the project mirr and npv

The company can sell the equipment at the end of third year to generate $10,000 after tax cash flow. What is the project's MIRR and NPV?

  At the same time the income statement shows net income of

plush pilots inc. has balance sheet equity of 5.4 million. at the same time the income statement shows net income of

  Diagram the expanded dupont system for hunter for 2006

Diagram the expanded DuPont system for Hunter for 2006. Insert the appropriate dollar amounts wherever possible. c. Use the Du Pont system to calculate the return on assets for the two years, and determine why they changed.

  Calculate the taxable equivalent yield

Assume you are in the 20 percent tax bracket and purchase a 5.8 percent municipal bond.

  Explain why stock buybacks are similar to dividends from

the purchase of treasury stock commonly called stock buybacks is being done with increasing frequency in lieu of

  Which of the below are considered cash management techniques

Which of the below are considered cash management techniques?

  Analysis for the financial situation

Make a strengths and weaknesses portion S-W-O-T analysis for the financial situation of this organization. 2 sources must be used cited properly in APA format with references page.

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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