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Consider the following information regarding corporate bonds: Rating AAA AA A BBB BB

Consider the following information regarding corporate bonds:

Rating

AAA

AA

A

BBB

BB

B

CCC

Average Default Rate

0.0%

0.0%

0,2%

0,4%

2.1%

5.2%

9.9%

Recession Default Rate

0.0%

1.0%

3.0%

3.0%

8.0%

16.0%

43.0%

Average Beta

0.05

0.05

0.05

0.10

0.17

0.26

0.31

Company

Market Capitalisation ($mm)

Total Enterprise Value ($mm)

Equity Beta

Debt Rating

Taggart Transcontinental

$4,500

8,000

1.1

BBB

Rearden Metal

$3,800

7,200

1.3

AAA

Wyatt Oil

$2,400

3,800

0.9

A

Nielson Motors

$1,500

4,400

1.75

BB

Your estimate of the asset beta for Nielson Motors is closest to:

a.) 0.59

b.) 0.71

c.) 0.66

d.) 0.42

Dec 03 2019 Read more Less More

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