In mid-2012 ralston purina had aa-rated 10 year bonds, Ask an Expert

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In mid-2012, Ralston Purina had AA-rated, 10 year bonds outstanding with a yield to maturity of 2.05%.

Required:

Question 1: What is the highest expected return these bonds could have?

Question 2: At the time, similar maturity Treasuries have a yield of 1.5%. Could these bonds actually have an expected return equal to your answer in part (a)?

Question 3: If you believe Ralston Purina's bonds have 0.5% chance of default per year, and that expected loss rate in the event of default is 60%, what is your estimate of expected return for these bonds?

Note: Explain all steps comprehensively.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91149110

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