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:

Legal Obligation

A duty enforced by law, requiring an individual or entity to conform to certain conduct or to refrain from certain actions.

Gratuitous Promise

A promise made without expecting anything in return, which is generally not enforceable in contract law unless it is made in a deed.

Existing Duty

An obligation that is currently in effect under the law or within the terms of a contract.

Consideration

In contract law, something of value promised to another when making an agreement, which is required for the contract to be enforceable.