A bond’s credit rating provides a guide to its risk. Long-term bonds rated Aa currently offer...

A bond’s credit rating provides a guide to its risk. Long-term bonds rated Aa currently offer yields to maturity of 6.0%. A-rated bonds sell at yields of 6.3%. Suppose that a 10-year bond with a face value of $1,000 and a coupon rate of 5.5% is downgraded by Moody’s from an Aa to A rating. Assume annual compounding.

a. What is the likely bond price before the downgrade? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Initial price $

b. What is the likely bond price after the downgrade? (Do not round intermediate calculations. Round your answer to 2 decimal places.) New price $

Expert Solution

ekkarill92 answered 1 month ago

A bond's credit rating provides a guide to its price. Assume Aaa bonds yield 4.1% and...

A bond's credit rating provides a guide to its price. Assume Aaa bonds yield 4.1% and Baa bonds yield 5.1%. Assume a 10% five-year bond with annual coupons and a face value of $1,000. (Do not round intermediate calculations. Round your answers to 2 decimal places.) a. What is the bond's price if it is rated as Aaa? Bond price $ b. What is the bond's price if it is rated as Baa? Bond price $

A bond's credit rating provides a guide to its price. Assume Aaa bonds yield 3.9% and...

A bond's credit rating provides a guide to its price. Assume Aaa bonds yield 3.9% and Baa bonds yield 4.9%. Assume a 10% five-year bond with annual coupons and a face value of $1,000. (Do not round intermediate calculations. Round your answers to 2 decimal places.) a. What is the bond's price if it is rated as Aaa? b. What is the bond's price if it is rated as Baa?

Define credit rating of a company and of long-term securities (bonds, shares etc.) A. List down...

Define credit rating of a company and of long-term securities (bonds, shares etc.) A. List down credit rating agencies in US. B. Pick one credit crediting agency and explain in detail the services offered by that agency. C. Explain criteria for assigning credit rating to the companies.

ABC Bonds are currently rated AA. The bonds mature in 10 years, make annual coupon payments,...

ABC Bonds are currently rated AA. The bonds mature in 10 years, make annual coupon payments, and have a coupon rate of 5.2%. You are convinced that the bonds will be downgraded to BBB 1 year from now. If AA bonds have a YTM of 7% and BBB bonds have a YTM of 8.3%, what is your rate of return on a 1-year investment in ABC Bonds if they are downgraded at the end of the year? Enter your answer...

If a corporate bond’s default risk increases, its credit spread will most likely: Decrease. remain unchanged....

If a corporate bond’s default risk increases, its credit spread will most likely: Decrease. remain unchanged. increase.

yield-to-maturity on long-term government bonds 3.4%. Yield-to maturity on TM Industry's long-term bonds 8.1%. Market risk...

yield-to-maturity on long-term government bonds 3.4%. Yield-to maturity on TM Industry's long-term bonds 8.1%. Market risk premium 6% estimated company equity beta 1.4 stock prince per share $30.00 number of share outstanding 60 million TM industries debt value $1.2 million tax rate 25% 1. It's WACC is: a. 6.46% b. 9.51% c. 8.35% d. 10.16%

Analyze the risk profiles of short-term bonds and long-term bonds during economic instability and fluctuating interest...

Analyze the risk profiles of short-term bonds and long-term bonds during economic instability and fluctuating interest rates. This is from the book financial markets and instituons global edition 9th edition by mishkin.

14. Suppose that short- term municipal bonds currently offer yields of 4%, while comparable taxable bonds...

14. Suppose that short- term municipal bonds currently offer yields of 4%, while comparable taxable bonds pay 5%. Which gives you the higher after- tax yield if your tax bracket is: ( LO 2- 1) a. Zero b. 10% c. 20% d. 30% 19. Consider the three stocks in the following table. Pt represents price at time t, and Q t represents shares outstanding at time t. Stock C splits two- for- one in the last period. ( LO 2-...

The ABC Corporation had issued 3% coupon (semi-annual), 5-year, AA-rated bonds to finance its business growth....

The ABC Corporation had issued 3% coupon (semi-annual), 5-year, AA-rated bonds to finance its business growth. Use both your financial calculator (write the keys and the answer) and show the function you’d use in Excel). a. If investors are currently offering $1150, what is the expected YTM on the investment? i. Is this a premium/discount bond? Describe the relationship of the YTM, the coupon rate and the price of a bond. b. If they were willing to pay no...

The ABC Corporation had issued 5% coupon (semi-annual), 10-year, AA-rated bonds to finance its business growth....

The ABC Corporation had issued 5% coupon (semi-annual), 10-year, AA-rated bonds to finance its business growth. Use both your financial calculator and Excel (show me the inputs for both). a. If investors are currently offering $1100, what is the expected YTM on the investment? b. Is this a premium/discount bond? Describe the relationship of the YTM, the coupon rate and the price of a bond? c. If they were willing to pay no more than $970 for this bond, what...

Question