Rollincoast Incorporated Issued BBB Bonds Two Years Ago That Provided

Rollincoast Incorporated issued BBB bonds two years ago that provided a yield to maturity of 11.5 percent. Long-term risk-free government bonds were yielding 8.7 percent at that time. The current risk premium on BBB bonds versus government bonds is half what it was two years ago. If the risk-free long-term governments are currently yielding 7.8 percent, then at what rate should Rollincoast expect to issue new bonds?

A) 7.8%
B) 8.7%
C) 9.2%
D) 10.2%
E) 12.9%

Correct Answer:

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