Use the Following Information to Answer the Question(s)below

question 62

Multiple Choice

Use the following information to answer the question(s) below.
Consider the following information regarding corporate bonds:
-Nielson Motors plans to issue 10-year bonds that it believes will have an BBB rating.Suppose AAA bonds with the same maturity have a 3.5% yield.Assume that the market risk premium is 5% and the expected loss rate in the event of default on the bonds is 60%.The yield that these bonds will have to pay during a recession is closest to:

• A)3.50%
• B)3.75%
• C)4.00%
• D)5.50%

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Definitions:

Return on Assets

A measure of how effectively a company is using its assets to generate earnings.

Revenues

Revenues are the total amount of money received by a company for goods sold or services provided during a specific period.

Expenses

Costs incurred in the process of earning revenue, often categorized into operating and non-operating expenses.

Balance Sheet

An accounting statement that itemizes the total assets, liabilities, and equity of shareholders at a defined date.