credit risk and the value of corporate debt

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1、confirmingpagesPART7"""""CHAPTERDEBTFINANCING23CreditRiskandtheValueofCorporateDebt!WefirstlookedathowtovaluebondswaybackTheextrayieldoncorporatebondsistheannualinChapter3.Weexplainedinthatchapterwhatbondpaymentthatinvestorsdemandfortakingonthedealersmeanwhentheyrefertospotr

2、atesofinterestpossibilityofdefault.Webeginourreviewofcorporateandyieldstomaturity.Wediscussedwhylong-termandbondsbylookingathowthisyieldspreadvariesshort-termbondsmayofferdifferentratesofinterestandwiththelikelihoodofdefault.TheninSection23-2whypricesoflong-termbondsareaffec

3、tedmorebyawelookmorecarefullyatthecompany’sdecisiontochangeinrates.Welookedatthedifferencebetweendefault.Weshowthatdefaultisanoption;ifthegoingnominalandreal(inflation-adjusted)interestrates,andbecomestootough,thecompanyhastheoptiontostopwesawhowinterestratesrespondtochanges

4、inthepaymentsonitsbondsandhandoverthebusinesstoprospectsforinflation.thedebtholders.WeknowwhatdeterminesthevalueAllthelessonsofChapter3holdgoodforbothofoptions;therefore,weknowthebasicvariablesthatgovernmentandcorporatebonds,butthereisalsomustenterintothevaluationofcorporate

5、bonds.afundamentaldistinctionbetweengovernmentandOurnextstepistolookatbondratingsandsomecorporateissues.WhentheU.S.Treasuryborrowsofthetechniquesthatareusedbybanksandbondmoney,youcanbeconfidentthatthedebtwillbeinvestorstoestimatetheprobabilitythattheborrowerrepaidinfullandon

6、time.Thisisnottrueofcorporatewillnotbeabletorepayitsdebts.Asacompany’sborrowing.Look,forexample,atFigure23.1.Youcanprospectsdeteriorate,bondholdersworryincreasinglyseethatin2008companiesdefaultedonarecord$430aboutthisrisk,andtheirworriesarereflectedinlowerbillionofdebt.Bondh

7、oldersareawareofthedangerbondprices.Therefore,inthefinalsectionwedescribethattheywillnotgettheirmoneybackandsodemandasomeofthewaysthatfinancialmanagersmeasurethehigherrateofinterest.riskoflossfrominvestmentincorporatebonds."""""23-1YieldsonCorporateDebtSixFlagsisknownforther

8、oller-coasterridesatitsthemeparks,butthecompanyitselfhasalsoexperiencedawhi