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  1. business
  2. accounting
  3. 2. black sheep corporation's 5-year bonds yield 7.

2. Black Sheep Corporation's 5-year bonds yield 7.00%, and 5-year T-bonds yield 5.15%. The real...

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Accounting

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2. Black Sheep Corporation's 5-year bonds yield 7.00%, and 5-year T-bonds yield 5.15%. The real risk-free rate is r* 3.0%, the inflation premium for 5-year bonds is IP - 1.75%, the liquidity premium for Keys' bonds is LP = 0.75% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t-1)x0.1%, where t = number of years to maturity. What is the default risk premium (DRP) on Black Sheep's bonds? 3. Black Sheep Corporation's balance sheet as of today is as follows: Long-term debt (bonds, at par) $10,000,000 Preferred stock 2,000,000 Common stock ($10 par) 10,000,000 Retained earnings 4,000,000 Total debt and equity $26,000,000 The bonds have a 4.0% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firm's debt

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