Question: Using yahoo finance, look up the BlackRock Corporate High Yield Fund (ticker HYT).
a) Write the balance sheet for HYT (Note: You just need a simple balance sheet like what we have done in class. It should have the aggregate equity, debt, and assets. You don't need their full, detailed financial statements).
b) Assume HYT takes out an additional $50M in debt to make additional investments. What is the new leverage ratio (you may want to recreate the balance sheet).
c) HYT invests primarily in high-yield (and therefore high-risk) bonds. Assume these bonds pay an average of 8%, and assume HYT acquires debt at an interest cost of 1.5%. If you invest in the fund, what is your expected annual percent return net of the interest costs? Use the leverage from part b and calculate on a portfolio basis instead of a per-share basis (this will make it easier to deal with interest costs).
d) Continuing from part (b), a wave of corporate bond defaults occurs, and the value of HYT's investments falls by $100M. On a percentage basis, what is the return to 1) the portfolio and 2) HYT's shareholders as a result of this default wave?