Question

In: Finance

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.)

Solutions

Expert Solution

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

ABC Co. issued 1 million 6 percent annual coupon bonds that mature in 10 years. The...
ABC Co. issued 1 million 6 percent annual coupon bonds that mature in 10 years. The face value is $1,000 per bond. What are the expected cash flows from one of these bonds?
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...
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...
TURN YOUR ANSWER IN WORD. The ABC Corporation had issued 3% coupon (semi-annual), 5-year, AA-rated bonds...
TURN YOUR ANSWER IN WORD. 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...
ABC, Inc. currently has an issue of bonds outstanding that will mature in 31 years.
  4) ABC, Inc. currently has an issue of bonds outstanding that will mature in 31 years. The bonds have a face value of $1,000 and a stated annual coupon rate of 20.0% with annual coupon payments. The bond is currently selling for $1000. What is your expected quoted annual rate of return if you buy the bonds and hold them until maturity? 5) XYZ, Inc. has a bond issue outstanding with a $1,000 par value and a maturity of...
A company has 300,000 bonds outstanding that make semi-annual coupon payments currently trading at $1,010, with...
A company has 300,000 bonds outstanding that make semi-annual coupon payments currently trading at $1,010, with a 8% coupon rate and 15 years to maturity. In addition, the company has a current stock price of $54, five million shares outstanding, a 35% tax rate, a beta of 0.85, a risk-free rate of 2%, and an expected market return of 9%. What is the weighted average cost of capital (WACC)?
Consider two bonds, both with 8% coupon rates (assume annual coupon payments) one with 10 years...
Consider two bonds, both with 8% coupon rates (assume annual coupon payments) one with 10 years to maturity and the other with 20 years to maturity. Assume that current market rates of interest are 8%. Calculate the difference in the change of the price of the two bonds if interest rates decrease to 6% one year after purchasing the bond. Repeat the procedure assuming that interest rates increase to 10% one year after purchase. Explain the major bond pricing principle...
Consider two bonds, both with 8% coupon rates (assume annual coupon payments) one with 10 years...
Consider two bonds, both with 8% coupon rates (assume annual coupon payments) one with 10 years to maturity and the other with 20 years to maturity. Assume that current market rates of interest are 8%. Calculate the difference in the change of the price of the two bonds if interest rates decrease to 6% one year after purchasing the bond. Repeat the procedure assuming that interest rates increase to 10% one year after purchase. Explain the major bond pricing principle...
 ​Pybus, Inc. is considering issuing bonds that will mature in 25 years with an annual coupon...
 ​Pybus, Inc. is considering issuing bonds that will mature in 25 years with an annual coupon rate of 7 percent. Their par value will be ​$1,000​, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds​ and, if it​ does, the yield to maturity on similar AA bonds is 11.5 percent. ​ However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A​ rating,...
Pybus, Inc. is considering issuing bonds that will mature in 23 years with an annual coupon...
Pybus, Inc. is considering issuing bonds that will mature in 23 years with an annual coupon rate of 8 percent. Their par value will be ​$1,000​, and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds​ and, if it​ does, the yield to maturity on similar AA bonds is 9.5 percent. ​ However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A​ rating,...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT