The yield DU will have to pay and the spread over AAA bonds will it have to pay.

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Answer 1

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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Pybus, Inc. is considering issuing bonds that will mature in 23years with an annual coupon rate of 9 percent. Their par value will be $1,000, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds and, if it does, the yield to maturity on similar AA bonds is 7percent. However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A rating, the yield to maturity on similar A bonds is 8 percent. What will be the price of these bonds if they receive either an A or a AA rating? The price of the Pybus bonds if they receive a AA rating will be $__________ (Round to the nearest cent.)

Pybus, Inc. is considering issuing bonds that will mature in 17 years with an annual coupon rate of 6 percent. Their par value will be $1,000, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds and, if it does, the yield to maturity on similar AA bonds is 7.5 percent. However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A rating, the yield to maturity on similar A bonds is 8.5 percent. What will be the price of these bonds if they receive either an A or a AA rating?

Pybus, Inc. is considering issuing bonds that will mature in 21 years with an annual coupon rate of 12 percent. Their par value will be $1,000, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds and, if it does, the yield to maturity on similar AA bonds is 9.5 percent. However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A rating, the yield to maturity on similar A bonds is 10.5 percent. What will be the price of these bonds if they receive either an A or a AA rating? Question content area bottom Part 1 a. The price of the Pybus bonds if they receive a AA rating will be $enter your response here.

Answer 2

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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Answer 3

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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Answer 4

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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Answer 5

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.

Answer 6

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.

Answer 7

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.

Answer 8

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.

Answer 9

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.

Answer 10

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.

Answer 11

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.

Answer 12

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Answer 13

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Answer 14

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Answer 15

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The yield DU will have to pay and the spread over AAA bonds will it have to pay.

Solution Summary: The author calculates the yield DU will have to pay and the spread over AAA bonds will be 0.74%.

To determine: The yield DU will have to pay and the spread over AAA bonds will it have to pay.

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.

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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Chapter 12 Solutions