son.1   3. Referring to the case “Bear Stearns and the Seeds of Its Demise.” Baa-rated corporate bonds had average five-year default rate of 2.2%, whereas Baa-rated CDOs had five-year default rate of 24%. Why are the default rates on the debt securities of the same rating so dramatically different?

Fundamentals of Financial Management, Concise Edition (MindTap Course List)
9th Edition
ISBN:9781305635937
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter10: The Cost Of Capital
Section: Chapter Questions
Problem 3DQ: Next, we need to calculate MMMs cost of debt. We can use different approaches to estimate it One...
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3. Referring to the case “Bear Stearns and the Seeds of Its Demise.” Baa-rated corporate bonds had average five-year default rate of 2.2%, whereas Baa-rated CDOs had five-year default rate of 24%. Why are the default rates on the debt securities of the same rating so dramatically different?

 

 

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