The 20-year Treasury rate is 4.05 percent, and a firm’s credit rating is BB. Suppose management of the firm decides to raise $20 million by selling 20-year bonds. Management determines that since it has plenty of experience, it will not need to hire an investment banker. At present, 20-year BB bonds are selling for 145 basis points above the 20-year Treasury rate, and it is forecast that interest rates will not stay this low for long. What is the cost of borrowing? Borrowing cost rate % What role does timing play in this situation? Time is of (essence or no essence) in this case.
The 20-year Treasury rate is 4.05 percent, and a firm’s credit rating is BB. Suppose management of the firm decides to raise $20 million by selling 20-year bonds. Management determines that since it has plenty of experience, it will not need to hire an investment banker. At present, 20-year BB bonds are selling for 145 basis points above the 20-year Treasury rate, and it is forecast that interest rates will not stay this low for long. What is the cost of borrowing? Borrowing cost rate % What role does timing play in this situation? Time is of (essence or no essence) in this case.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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The 20-year Treasury rate is 4.05 percent, and a firm’s credit rating is BB. Suppose management of the firm decides to raise $20 million by selling 20-year bonds. Management determines that since it has plenty of experience, it will not need to hire an investment banker. At present, 20-year BB bonds are selling for 145 basis points above the 20-year Treasury rate, and it is
What is the cost of borrowing?
| Borrowing cost rate | % |
What role does timing play in this situation?
| Time is of (essence or no essence) in this case. |
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