Attempts

Keep the Highest $/1$

Yield modeling on a debt security

Suppose Shreiker Incorporated is planning to massively expand its manufacturing facility and will issue $15-$year corporate bonds to obtain fundin

the project. Prior to issuing the corporate bonds, Shreiker Incorporated must determine the yield that it must offer to successfully sell the debt

securities$.$ Upon further analysis of the key characteristics used to determine the appropriate yield of a bond, Shreiker Incorporated learns the

following:

The annualized yield on a risk$-$free $15-$year Treasury bond is $5$ percent.

A $3$ percent credit risk premium is needed to compensate investors for credit risk.

A $0\mathrm{.}3$ percent liquidity premium is needed to compensate investors due to the low liquidity of the bonds.

A $0\mathrm{.}4$ percent tax adjustment is needed to compensate investors for a difference in tax status.

What is the appropriate yield to be offered on the corporate bonds?

$1\mathrm{.}30\%$

$2\mathrm{.}70\%$

$4\mathrm{.}20\%$

$8\mathrm{.}70\%$