The 30-Day T-Bill Rate Is 5

question 30

Essay

The 30-day T-bill rate is 5%.SWC Company has just issued $100 million of commercial paper at par.There is a 0.1% chance the company will default on the issue.If the firm defaults, the commercial paper will be worth $5 million.Determine the yield spread between the T-bill rate and commercial paper assuming that the required return by investors in commercial paper is equal to the T-bill rate.

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Definitions:

Related Diversification

A strategy where a business expands its activities into areas that are similar to its existing operations.

Organisational Growth

The process by which an organization increases in size, resources, capabilities, or market share over time.

Core Competencies

Fundamental strengths and abilities of a company that give it a competitive advantage.

Organisational Strength

The capabilities and resources that give an organization a competitive edge or superior performance ability.