At the end of 2019, Treefern Ltd. had BBB-rated, 5-year bonds outstanding with a yield to maturity of 15%. At the time, government bonds with similar maturity had a yield of 2%. Suppose the expected return of the market portfolio is 7% and you believe Treefern Ltd.’s bonds have a beta of 0.45. If the expected loss rate of these bonds in the event of default is 55%. What annual probability of default would be consistent with the yield to maturity of Treefern Ltd.’s bonds at the end of the year 2019?A.19.6%B.22.7%C.23.4%D.20.3%

XYZ Ltd., whose bonds are rated as BBB on the market, would like to apply for a 3-year loan from your bank. Related corporate bond returns and government bond returns are presented in the following two tables. What is the cumulative probability of default on this loan at the maturity date?  (1 mark) Table 1 Corporate bond ratings and yields with different maturities 1-year2-year3-yearAAA2.45%3.15%3.65%AA2.65%3.59%4.30%A3.21%3.95%4.60%BBB4.30%4.60%5.22%BB4.80%5.50%6.55%B5.70%6.50%7.80%CCC6.50%7.10%8.20%CC7.80%8.80%9.60%  Table 2 Government bond yields with different maturitiesMaturity1-year2-year3-yearReturns1.45%2.25%2.75%Question 8Answera.6.88%b.4.72%c.93.12%d.94.68%

1FINA2222Practice Questions for Final ExamSemester 2 2023Chapter 12Use the following information to answer the question(s) below.Consider the following information regarding corporate bonds:Rating AAA AA A BBB BB B CCCAverage Default Rate 0.0% 0.1% 0.2% 0.45% 2.2% 5.5% 12.2%Recession Default Rate 0.0% 1.0% 3.0% 3.0% 8.0% 16.0% 48.0%Average Beta 0.05 0.05 0.05 0.10 0.17 0.26 0.31CompanyMarketCapitalization($mm)TotalEnterpriseValue ($mm)EquityBetaDebtRatingTaggart Transcontinental $4500 8000 1.1 BBBRearden Metal $3800 7200 1.3 AAAWyatt Oil $2400 3800 0.9 ANielson Motors $1500 4400 1.75 BB1. Your estimate of the debt beta for Taggart Transcontinental would be:A) 0.05B) 0.10C) 0.17D) 1.00

Assume a one-year government coupon bond was just issued by a sovereign country. Face value F = $100. Coupon rate c = 5%, paid annually. One-year risk free rate is rf = 2%. (1) Assume this sovereign country is risk-free, please compute the bond price and yield today. (2) Assume today was in year 2012, and the bond issuer was the Greece government. The credit rating of Greek government bond was downgraded to “junk” bond. The estimated default probability in one year is π = 30%. If default, the recovery ratio ℓ = 40%. The expected bond market return is E(rM) = 3%. The beta of this bond β = 0.2. Please recompute the price and yield of this bond. In the above two cases, is the bond traded at discount, par or premium?

Analysts estimate that a bond has an equal probability of being priced at either $940 or $1,050 one year from today. The bond is also callable at any time at $1,020. What is the expected value of this bond in one year?

The expected rate of return is 1.5 times the 12% expected rate of return on the market. What is the beta if the risk-free rate is 4%? Question 44Answera.1.75b.0.875c.1.17