In mid-2012, Ralston Purina had AA-rated, 10-year bonds outstanding with a yield to maturity of 2.33%. a. What is the highest expected return these bonds could have? b. At the time, similar maturity Treasuries had a yield of 1.33%. Could these bonds actually have an expected return equal to your answer in part (a)? c. If you believe Ralston Purina's bonds have 0.5% chance of default per year, and that expected loss rate in the event of default is 45%, what is your estimate of the expected return for these bonds?

In mid-2012, Ralston Purina had AA-rated, 10-year bonds outstanding with a yield to maturity of 2.33%. a. What is the highest expected return these bonds could have? b. At the time, similar maturity Treasuries had a yield of 1.33%. Could these bonds actually have an expected return equal to your answer in part (a)? c. If you believe Ralston Purina's bonds have 0.5% chance of default per year, and that expected loss rate in the event of default is 45%, what is your estimate of the expected return for these bonds?

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 3EB: Smashing Cantaloupes Inc. issued 5-year bonds with a par value of $35,000 and an 8% semiannual...

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