Assume Tesla has a 14 year 6.5% annual coupon bond with a YTM of 3.4%. If...
Assume Tesla has a 14 year 6.5% annual coupon bond with a YTM of 3.4%. If a 14 year Treasury Bond has a coupon rate of 6.5% and a YTM of 3.1%, what is the default risk premium for investing in Tesla?
Group of answer choices 3.0% 3.4% 0.3% 3.1%
Homework Answers
Given that,
YTM on Tesla bond = 3.4%
and YTM on Treasury bond = 3.1%
Treasury bonds are assume to be free of default risk, so default risk premium on the Tesla's bond is
default risk premium for investing in Tesla = YTM on Tesla - YTM on Treasury bond = 3.4% - 3.1% = 0.3%
So, Option C is correct.
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