In? mid-2012, Ralston Purina had? AA-rated, 10-year bonds outstanding with a yield to maturity of 1.61%.
a. What is the highest expected return these bonds could? have?
b. At the? time, similar maturity Treasuries had a yield of 0.61%. Could these bonds actually have an expected return equal to your answer in part ?(a?)?
c. If you believe Ralston? Purina's bonds have 0.8% chance of default per? year, and that expected loss rate in the event of default is 47%?, what is your estimate of the expected return for these? bonds?
Round to 2 decimal places.