Questions
FA25-BL-BUS-F305-1130 Final Exam
Single choice
What is the cost of bond?
Options
A.4.704%
B.2.928%
C.None of the above
D.4.925%
E.5.855%
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Step-by-Step Analysis
Question: What is the cost of bond?
Option 1: 4.704% — This value would only be correct if the bond cost were derived from a probability-weighted discount rate or a specific yield curve that places emphasis on a rate near 4.7%. Without additional context or calculations, this figure does not align with the provided answer key.
Option 2: 2.928% — A bond cost near 2.9% would imply a highly favorable bond issue with substantial subsidies o......Login to view full explanationLog in for full answers
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Similar Questions
A bond’s yield to maturity represents the investor’s realized return for any holding period, regardless of whether the bond is held to maturity.
A bond with a coupon rate of 8% will also have a yield to maturity of 8%.
Question at position 10 (6 marks, difficulty level: Medium) The Dunley Corp. plans to issue one-year zero-coupon bonds. It believes the bonds will have a BBB rating, and the average debt beta for BBB rating is 0.12. Suppose AAA bonds with the same maturity have a 2.5% yield. If the market risk premium is 5%, use the annual default rates by debt rating here and calculate the yield to maturity of Dunley's one-year bond, assuming an expected 70% loss rate in the event of default during average economic times. [table] Rating: | AAA | AA | A | BBB | BB | B | CCC | CC-C Default Rate: | | | | | | | | Average | 0.0% | 0.1% | 0.2% | 0.5% | 2.2% | 5.5% | 12.2% | 14.1% In Recessions | 0.0% | 1.0% | 3.0% | 3.0% | 8.0% | 16.0% | 48.0% | 79.0% [/table] 5.070%2.900%3.450%4.065%
Question at position 10 (6 marks, difficulty level: Medium) The Dunley Corp. plans to issue one-year zero-coupon bonds. It believes the bonds will have a BBB rating, and the average debt beta for BBB rating is 0.12. Suppose AAA bonds with the same maturity have a 2.5% yield. If the market risk premium is 5%, use the annual default rates by debt rating here and calculate the yield to maturity of Dunley's one-year bond, assuming an expected 70% loss rate in the event of default during average economic times. [table] Rating: | AAA | AA | A | BBB | BB | B | CCC | CC-C Default Rate: | | | | | | | | Average | 0.0% | 0.1% | 0.2% | 0.5% | 2.2% | 5.5% | 12.2% | 14.1% In Recessions | 0.0% | 1.0% | 3.0% | 3.0% | 8.0% | 16.0% | 48.0% | 79.0% [/table] 2.900%5.070%4.065%3.450%
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