The Dunley Corp. plans to issue 5-year bonds. It believes the bonds will have a BBB rating. Suppose AAA bonds with the same maturity have a 4% yield. If the market risk premium is 5% using the data in the tables:

a. Estimate the yield Dunley will have to pay, assuming an expected 60% loss rate in the event of default during average economic times. What spread over AAA bonds will it have topay?

b. Estimate the yield Dunley would have to pay if it were a recession, assuming the expected loss rate is 80% at that time but the beta of debt and market risk premium are the same as in average economic times. What is Dunley's spread over AAAnow?

c. In fact, one might expect risk premia and betas to increase in recessions. Redo part (b) assuming that the market risk premium and the beta of debt both increase by 20%, that is they equal 1.2 times their value in recessions.

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P11.2a (lo 2, 4) fechter corporation had the following stockholders’ equity accounts on january 1, 2020: common stock ($5 par) $500,000, paid-in capital in excess of par—common stock $200,000, and retained earnings $100,000. in 2020, the company had the following treasury stock transactions. journalize and post treasury stock transactions, and prepare stockholders’ equity section. mar. 1 purchased 5,000 shares at $8 per share. june 1 sold 1,000 shares at $12 per share. sept. 1 sold 2,000 shares at $10 per share. dec. 1 sold 1,000 shares at $7 per share. fechter corporation uses the cost method of accounting for treasury stock. in 2020, the company reported net income of $30,000. instructions a. journalize the treasury stock transactions, and prepare the closing entry at december 31, 2020, for net income. b. open accounts for (1) paid-in capital from treasury stock, (2) treasury stock, and (3) retained earnings. (post to t-accounts.) c. prepare the stockholders’ equity section for fechter corporation at december 31, 2020.

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