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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 as a percentage rounded to two decimal places (e.g., 5.64%).

(Please show step by step using N, I/Y, PV, PMT and FV on a calculator as well if needed.)

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jeff jeffy answered 1 year ago
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