Solved: What rate should jim tire expect to issue new bonds, Finance Basics

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What rate should jim tire expect to issue new bonds

Problem:

Jim's Tire Incorporated issued BBB bonds two years ago that provided a yield to maturity of 11.5%. Long-term risk-free government bonds were yielding 8.7% at that time.

The current risk premium on BBB bonds versus government bonds is half of what it was two years ago. If the risk-free long-term government bonds are currently yielding 7.8%, then at what rate should Jim's Tire expect to issue new bonds?

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Finance Basics: What rate should jim tire expect to issue new bonds

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