Answered: Consider the following information from… | bartleby

Entrepreneurial Finance

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter9: Projecting Financial Statements

Section: Chapter Questions

Problem 3bM

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Question

Consider the following information from 2017.
Item
T-bills
Return
3.6%
Corporate bonds 4.7%
Stocks
Inflation
7.3%
1.6%
What is closest to the real return on corporate bonds?
1%
2%
3%
4%

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Use the following information to answer the question(s) below. Consider the following information regarding corporate bonds: AAA Rating Average Default Rate 0.0% Recession Default Rate 0.0% B CCC 5.5% 12.2% AA A BBB BB 0.1% 0.2% 0.5% 2.2% 1.0% 3.0% 3.0% 8.0% 16.0% 48.0% Average Beta 0.05 0.05 0.05 0.10 0.17 0.26 0.31 Nielson Motors plans to issue 10-year bonds that it believes will have a BBB rating. Suppose AAA bonds with the same maturity have a 3.5 % yield. Assume that the market risk premium is 5% and the expected loss rate in the event of default on the bonds is 60%. The yield that these bonds will have to pay during average economic times is closest to: O 5.50%. O 4.00%. 3.50%. O 3.75%.
Use the following information to answer the question(s) below. Consider the following information regarding corporate bonds: Rating AAA AA A BBB BB B CCC Average Default Rate 0.0% 0.1% 0.2% 0.5% 2.2% 5.5% 12.2% Recession Default Rate 0.0% 1.0% | 3.0% 3.0% 8.0% 16.0% 48.0% Average Beta 0.05 0.05 0.05 0.10 0.17 0.26 0.31 Trucks R' Us (TRUS) has a market capitalization of $146 billion, $74 billion in BB rated debt, and $10 billion in cash. If Trucks R' Us' equity beta is 1.68, then their underlying asset beta is closest to (2 decimal places):
Consider the following information for a period of years: Arithmetic Mean Long-term government bonds 7.1 % Long-term corporate bonds 7.2 Inflation 4.2 a. What is the real return on long-term government bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the real return on long-term corporate bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
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