1. General Mills issued a note on April 17, 2018 with a maturity date of April 17, 2028 (10-year tenor). The face value of the issue was $1,400 million. The bond promised to make 20 semi-annual coupon payments (starting 10.17.2018) at annual rate of 4.200%.
   1. At issuance, the note sold at 99.798% of face value. Determine the yield to maturity (YTM) an investor would receive buying the note at issuance under these conditions.
   2. The 10-year UST note had a yield on April 17, 2018 of 2.82% (APR). Calculate the default spread on the General Mills note.
   3. If the only default risk is that at maturity General Mills repays only 50% of face value (but all coupon payments), determine the market probability of this default event from this pricing spread assuming the risk was random (the expected return in the risk free rate). (Use a 2 outcome model – default or no default)

Assume on October 18, 2020, this bond will be trading with a YTM of 2.38% (APR).

4. With 15 coupon payments remaining, determine the market price on this General Mills note on this day.

Answer rating: 100% (QA)

ANS WER The yield to maturity Y TM an investor would receive buying the note at issuance under these ... View the full answer