{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

# IP-3 - PROBLEM 4-2 Given Maturity Terms Face value Coupon...

This preview shows pages 1–4. Sign up to view the full content.

PROBLEM 4-2 Given Maturity 5 years Terms Interest only Face value \$1,000 Coupon rate 12.00% Offering price \$800 Solution a. Promised YTM = 18.46% Bond Rating Caa/CCC 10 Year Treasury Yield = 5.02% Coupon 12.00% Principal \$1,000.00 Price \$800.00 Maturity 5 years Recovery Rate 50.00% Default Probability 5.00% Default Cash Flows Year 1 2 3 0 \$(800) \$(800) \$(800) 1 560 120 120 2 560 120 3 560 4 5 Expected yield to maturity if default occurs in this year -30.00% -8.50% 0.00% Probability of default in each year 5.00% 5.00% 5.00% Weighted YTM = E(YTM) x Pb of default -1.50% -0.42% 0.00% Average YTM based on Expected Cash Flows 12.51% YTM Spread 13.44% Cost of Debt Spread 7.49% b. (Note: the discussion of this analysis is found in the Appendix to the chapter)

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Solu = Value giv = Formula/ = Qualitativ = Goal See = Crystal B = Crystal B s 4 5 \$(800) \$(800) \$(800) 120 120 120 120 120 120 120 120 120 560 120 120 560 1,120 18.46% Promised YTM 4.48% 7.21% 18.46% 5.00% 5.00% 75.00% 0.22% 0.36% 13.85% Promised Cash Flow Expected YTM = Cost of debt
ution Legend ven in problem /Calculation/Analysis required ve analysis or Short answer required ek or Solver cell Ball Input Ball Output

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
PROBLEM 5-5 a. For each segment, 1. Identify a set of comparable companies that have traded equity. The criteria for
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}