A limited liability firm in a two-period model borrows $100 to invest in a project. The tax rate is 21%, and the risk-free rate between the two periods is 44. Bond holders are risk-neutral, equity investors are risk-averse, and you are told they think the beta of their payoffs is 3. The ERP is 646. Project payoffs are: ((-100) 0.1 ; f(75)-0.2; f(125)-02; f(175)=0.2: (800=6.3). What is the YTM of the bond sold by the firm?

Answer rating: 100% (QA)

The YTM of a bond is basically the inner price of return IRR associated with buying that bond and pr... View the full answer