Description of this paper

Rollincoast Incorporated issued BBB bonds two years ago

Description

solution


Question

Rollincoast Incorporated issued BBB bonds two years ago that provided a yield to maturity of 11.5%. Long-term risk-free government bonds were yielding 8.7% at that time. The current risk premium on BBB bonds versus government bonds is half of what it was two years ago. If the risk-free long-term government bonds are currently yielding 7.8%, then at what rate should Rollincoast expect to issue new bonds?

 

Paper#32054 | Written in 18-Jul-2015

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