EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103145947
Author: DeMarzo
Publisher: PEARSON
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Question
Chapter 12, Problem 17P
a.
Summary Introduction
To determine: The yield DU will have to pay and the spread over AAA bonds will it have to pay.
b.
Summary Introduction
To determine: The yield DU would have to pay if it were a recession, by assuming the expected loss rate is 80% and the spread over AAA bonds will have to pay.
c.
Summary Introduction
To determine: The redo calculation of part (b) by assuming that the market risk premium and the beta of debt both increase by 20%; that is, they equal 1.2 times their value in recessions.
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Students have asked these similar questions
A plot of the yields on bonds with different terms to maturity but the same risk, liquidity, and tax
considerations is known as
O A. a yield curve.
B. a risk-structure curve.
OC. a term-structure curve.
5-
O D. an interest-rate curve.
Suppose people expect the interest rate on one-year bonds for each of the next four years to be 3%,
6%, 5%, and 6%. If the expectations theory of the term structure of interest rates is correct, then the
implied interest rate on bonds with a maturity of four years is
nearest whole number).
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Refer to the figure on your right. Suppose the expected interest rates on one-year bonds for each of
the next four years are 4%, 5%, 6%, and 7%, respectively.
1.
1.) Use the line drawing tool (once) to plot the yield curve generated.
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Term to Maturity in Years
2.) Use the point drawing tool to locate the interest rates on the next four years.
5.
3-
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.....
Consider two types of bonds: A 10 year to maturity corporate bond and a 10 year to maturity Treasury bond. We know that Corporate Bonds have default risk.
Discuss the impact on the markets for these two type of bonds & on the risk premium when there is a FALL in the
risk of corporate default?
Provide a DISCUSSION of the impact and ILLUSTRATE the impact graphically using two diagrams, one for corporate bonds
and one for Treasuries. The diagrams should show the impact on each yield and the impact on the risk premium [label your diagram clearly to illustrate the old premium vs. the
new premium].
hint: draw your diagrams side by side, so you can show the risk premiums as done in lecture.
The risk-free rate on long-term Treasury bonds is 6.04%. Assume thatthe market risk premium is 5%. What is the required return on the market? Now use the SML equation to calculate the two companies’ requiredreturns.
Chapter 12 Solutions
EBK CORPORATE FINANCE
Ch. 12.1 - According to the CAPM, we can determine the cost...Ch. 12.1 - What inputs do we need to estimate a firms equity...Ch. 12.2 - How do you determine the weight of a stock in the...Ch. 12.2 - Prob. 2CCCh. 12.2 - Prob. 3CCCh. 12.3 - How can you estimate a stocks beta from historical...Ch. 12.3 - How do we define a stocks alpha, and what is its...Ch. 12.4 - Why does the yield to maturity of a firms debt...Ch. 12.4 - Prob. 2CCCh. 12.5 - What data can we use to estimate the beta of a...
Ch. 12.5 - Prob. 2CCCh. 12.6 - Why might projects within the same firm have...Ch. 12.6 - Under what conditions can we evaluate a project...Ch. 12.7 - Prob. 1CCCh. 12.7 - Prob. 2CCCh. 12 - Prob. 1PCh. 12 - Suppose the market portfolio has an expected...Ch. 12 - Prob. 3PCh. 12 - Suppose all possible investment opportunities in...Ch. 12 - Using the data in Problem 4, suppose you are...Ch. 12 - Prob. 6PCh. 12 - Prob. 7PCh. 12 - Suppose that in place of the SP 500, you wanted to...Ch. 12 - Prob. 9PCh. 12 - You need to estimate the equity cost or capital...Ch. 12 - In mid-2012, Ralston Purina had AA-rated, 10-year...Ch. 12 - Prob. 15PCh. 12 - Prob. 16PCh. 12 - Prob. 17PCh. 12 - Your firm is planning to invest in an automated...Ch. 12 - Consider the setting of Problem 18. You decided to...Ch. 12 - Prob. 20PCh. 12 - In mid-2015, Cisco Systems had a market...Ch. 12 - Weston Enterprises is an all-equity firm with two...Ch. 12 - Prob. 24PCh. 12 - Your company operates a steel plant. On average,...Ch. 12 - Prob. 26PCh. 12 - You would like to estimate the weighted average...
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